Buying a new house is an exciting endeavor, yet it can be one of the most stressful periods of a person’s life. Of course, that stress comes largely from the fact that this process offers you the crucial component of having a roof over your head—or not. However, it’s just as important to consider the fact that the house you purchase can determine your financial security for years to come.
If you try to purchase a home you can’t afford, you’ll struggle to keep up with your monthly payments and watch your credit score fall as a result. Or, if you purchase less of a house than you can afford, you may find yourself underwhelmed by your new home. So, how can you figure out how much house you can afford? If this is your first step in selecting a house, you’ll set yourself up for success from the start.
Consider your prospective mortgage.
To figure out whether you can afford that beautiful new house you’re eyeing, you must study the mortgage you‘d be taking on with that purchase. Some may suggest you turn to your income to determine how much house you can afford; the standard recommendation is to allocate no more than 28 percent of your pre-tax monthly income to a mortgage payment, or a total mortgage amount of no more than two-and-a-half times your gross annual income. However, you’ll find that a mortgage loan calculator can take these estimates and guide you toward a more precise determination of how much money you can put toward your new home. By considering the mortgage term, interest rate, total loan amount, and other such factors, you’ll determine the approximate monthly mortgage payment you’ll be facing if you purchase a particular home.
Pay close attention to every house.
You’ll find that there are some factors that you simply can’t account for in a calculator, yet these are an important factors in your home price. For instance, have you considered the property tax and other costs that would come with your purchase? These may vary over the life of the loan you’re taking out but will ultimately impact the cost of your home. However, you also need to look closely at the specific house you’re considering. You must consider the added cost of basement repairs, foundation crack repairs, waterproofing in Stow, OH, or elsewhere—in other words, you have to factor prospective repairs and maintenance into your homebuying budget.
Take action to improve your odds.
As a homebuyer, you can only affect a few factors of your mortgage loan. Your top priority in getting a higher maximum loan amount or low rate is to consider your credit score, down payment, and other factors that apply to your mortgage prospects. By improving your credit score, saving to make a higher down payment, or taking similar efforts that will improve your home loan prospects, you’ll ensure you can afford the house you’re looking at.
Determine the best mortgage lender.
No matter the loan term or amount you’re seeking, you must consider the best lender for your needs. Whether you’re turning to a conventional bank, a local credit union, or some alternative financial institution, different lenders will offer different ways to finance your home’s purchase price. No two lenders will offer identical homebuying power, so you’ll have the best results in choosing the right fit for you. Feeling a bit uncertain still? Consult a financial advisor or another expert to help determine what mortgage and lender will best meet your needs.
By paying close attention to each of these factors, you’ll be able to easily figure out whether you can truly afford the beautiful new home you’ve got your eye on.