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How Much House Can I Afford? Factors That Influence It

How Much House Can I Afford? Factors That Influence It

The question of how much house can I afford is one that comes up a lot if you’re looking to buy your first home. But what determines how much house you can afford? And how does it affect the kind of mortgage, length of term, and interest rate that’s right for you? In this guide, we’ll help demystify the process so you can make an informed decision about your home loan options.

Debt-To-Income (DTI) Ratio

The DTI ratio is a way of comparing your monthly housing costs to your monthly income. You get the number when you divide your total housing costs (mortgage payments, property taxes, insurance, and homeowners association fees) by your gross monthly income. You can also use it for other kinds of debt, for example, if you have a credit card, car loan, or mortgage payments.

The lower your DTI number is, the better! If it’s too high (say over 40), then lenders may not think you can afford the house and will deny your application for a loan. That doesn’t mean there aren’t other options for getting into a home. Even if this ratio isn’t ideal — ask us!

Credit Score

Your credit score is a number that helps lenders determine whether to approve a loan. The higher your score, the better your chances of getting approved for a mortgage loan. The lower your score, the worse your chances of getting approved for a mortgage loan.

Your credit score is based on information in your credit report and tells potential lenders how likely you are to repay debts in full and on time. It’s calculated by taking several factors into account:

· Your payment history with past bills

· How much debt you have compared with how much money you make (your ratio)

· How long has it been since you were late paying any bills

A Down Payment

When applying for a mortgage, your lender might require you to make a down payment. Not all mortgage lenders require that you pay a 20% down payment. The minimum down payment required is determined by a variety of factors, ranging from zero to 20%.

According to Trulia, the average down payment in the United States is around 16%, and the average first-time buyer puts down even more: 22%. If you don’t have this much saved up yet (or don’t want to spend all your life savings on one house), other options are available: You have the down payment gifted to you or you can put less than 20% down on your home purchase if you qualify for certain loan products.

Mortgage Rates

Mortgage rates are the interest rate charged to you, the borrower. The higher they are, the more expensive your monthly payments will be; therefore, it will take longer to pay off your mortgage loan. If you want a low-interest rate on your mortgage loan, then lenders may require a larger down payment from you for them to offer you that lower rate. If possible, try to get pre-approved for a loan before shopping around for homes so that when it comes time to buy one and make an offer on it (if there is competition), then at least you know what kind of house price range fits within your budget.

Property Insurance

Property insurance is a type of insurance that protects you from any damage to your property, like fire and theft. Lenders usually require it before they give you a loan or mortgage.

The cost of property insurance can vary based on your home’s size and location. If you have a full-time job, your lender may require you to carry mortgage protection insurance (PMI). This type of policy doesn’t cover everything that basic homeowners’ policies do; instead, it covers only part of the loss in case your house falls into disrepair due to unforeseen circumstances such as flooding or earthquakes—but it doesn’t protect against fire damage or vandalism.

Property Taxes 

Property taxes are one of the biggest expenses you’ll have to deal with after buying a home. The assessed value of your property determines property taxes, and they typically vary by state, county, and even neighborhood. In most states, property taxes are paid annually in installments.

Let us guide you home.