How much house can you afford?

Sometimes, what you want and what you can afford are two different things. To figure out how closely they align, you need to assess how much you can actually put towards a new home.

Here are the factors your lender will consider to determine this:

1. The down payment
2. The closing costs associated with your transaction
3. Your monthly mortgage payment

Down payment requirements
Most loans require a minimum down payment of between 3 and 5 percent of the total loan, depending on the type and terms of the loan. If you are able to come up with a 20 to 25 percent for the down payment, you may be eligible to take advantage of special fast-track programs and possibly eliminate mortgage insurance. There are a variety of loan programs available for buyers and even some that don't require a down payment. We can help you find a qualified lender who can help you figure out which loan is best for your financial situation.

Closing costs

In addition to the down payment, you have to pay fees for loan processing and other closing costs. They can include fees for home inspection fees and title company. These fees must be paid in full at the time of the final settlement, unless you are able to include these in your financing. When you apply for a loan, your lender will provide you with a good faith estimate of all settlement fees and an estimated total house payment based on an anticipated sale price. Of course, these numbers are only estimates.Your lender will let you know an exact figure closer to the closing date.

Your monthly mortgage payment

Most lenders require that your monthly payment be between 28 and 34 percent of your gross monthly income. They also figure in how much your mortgage payment along with all of your other expenses and financial obligations will be each month. In general, they want your total monthly expenses to fall between 36 and 45 percent of your gross monthly income. 

The goal is to figure out how much you can afford realistically. Just knowing this will save you countless hours in your search for the perfect home. We can put you in touch with a competent lender and walk with you through this process. Just give us a call.

Source: Murney Associates, Realtors