Before you start your house hunt, one question that should come to your mind is, “how much can I afford to buy?” Answering this question is very important to help you make the right choice. You can also narrow down your options when you know how much you can spend on a house. Knowing how much you can afford is not hard, and you don’t have to be a finance guru to figure it out.
To help make things easy, we’ve highlighted our top 5 steps that can help you get a rough estimate of what you can afford:
Write down your monthly budget
This is the first thing you should think about. So, put everything on that list, especially credit card payments, child support, alimony, car loan payments, or any other regular monthly debt payments. You should not also forget how much you spend on food, entertainment, clothing, or other expenses monthly. If you need help estimating your monthly mortgage cost, feel free to use our home mortgage calculator to help determine a payment that is affordable for you.
Check your credit score’s condition.
When you start thinking of buying a home, one of the essential things you should take note of is to have a sound and stable credit report. This is because, when you’re obtaining a house, what your lenders and mortgage companies will be looking at will be your credit score. You can also make a lot of difference in your interest rate when you have a good credit score. Obtaining your full credit report will help you see where your credit is doing well and where it may need a little help.
Know your debt to income ratio
This is another factor lenders will be considering when determining your mortgage. This data is an mathematical expression of how much debt you can take on with consideration of your gross annual earnings and necessary monthly expenses. The ideal debt to income ratio is 36% or less; you can usually pre-qualify for a loan if your debt to income ratio is better than this average rate. The amount you are qualified for can also be influenced by this rate. Essentially, this rate will help lenders ensure you can afford the monthly mortgage payment on top of your other necessary expenses. Compare the figures to your monthly income once you have them calculated.