How Much House Can You Really Afford?
One of the most important factors to guide both your home search and your mortgage application process is answering the question, “How much house can you really afford?” The number is partially based on hard financial analysis conducted by potential lenders, and partially based on more subjective factors such as lifestyle decisions and your level of comfort with debt. Answering this question and understanding lenders’ perspectives before you dive into the home buying process can help you find a property you love and make a successful financing application. Here are some factors that lenders consider when deciding how much you can afford.
Monthly Income Influences Your Mortgage Payments
The conventional wisdom says that no more than 30% of your monthly income should be spent on housing. Some experts – and by extension, lenders – look at the 30% ratio for your total debt payments each month. This means that they will look for other debts and take those into account when determining how much you can afford. Do you have outstanding debts such as student loans, auto payments, or credit card debt? It’s important to evaluate whether or not it’s reasonable to pay these off before you apply for a home.
The Big Picture of Your Mortgage Also Matters
The amount of the loan you’re asking for is relevant vis-à-vis the value of the home. What does the home appraise at, versus what are you offering? How much equity can you secure through a down payment? What does your credit score and credit report mean for your interest rate? Each of these factors has a dramatic impact on your total monthly payment and cost of home ownership.
Don’t Forget the Additional Home Ownership Costs
It’s also important to factor in home ownership costs that you’re free of when you’re renting a home. One of the most obvious is taxes, which occur on a quarterly or other regular basis. There’s also home owners’ insurance, and other forms of insurance depending on where you live and what coverage you choose to carry. Additionally, you have to cover utilities that you possibly didn’t pay as a tenant such as heating, water, and sewerage expenses. You’ll also want to have a repair fund available, for unexpected repairs and improvements. Each of these will need to factor into your calculations.
Even if your income isn’t as high as you’d like, your dreams of home ownership in Las Vegas aren’t out of reach. It’s important to know what you can afford. To take the first step, contact Sydnee Johnson Las Vegas Home Loans today to arrange for a personalized consultation.