How much house can I afford?
What factors help determine ‘how much house can I afford?’
Key factors in calculating affordability are 1) your monthly income; 2) cash reserves to cover your down payment and closing costs; 3) your monthly expenses; 4) your credit profile.
- Income – Money that you receive on a regular basis, such as your salary or income from investments. Your income helps establish a baseline for what you can afford to pay every month.
- Cash reserves – This is the amount of money you have available to make a down payment and cover closing costs. You can use your savings, investments or other sources.
- Debt and expenses – Monthly obligations you may have, such as credit cards, car payments, student loans, groceries, utilities, insurance, etc.
- Credit profile – Your credit score and the amount of debt you owe influence a lender’s view of you as a borrower. Those factors will help determine how much money you can borrow and the mortgage interest rate you’ll earn.
How much can I afford to spend on a house?
The home affordability calculator will provide you with an appropriate price range based on your situation. Most importantly, it takes into account all of your monthly obligations to determine if a home is comfortably within financial reach.
However, when banks evaluate your affordability, they take into account only your present outstanding debts. They do not take into consideration if you want to set aside $250 every month for your retirement or if you’re expecting a baby and want to save additional funds.
Home affordability begins with your mortgage rate
You will probably notice that any home affordability calculation includes an estimate of the mortgage interest rate you will be charged. Lenders will determine if you qualify for a loan based on four major factors:
- Your debt-to-income ratio, as we discussed earlier.
- Your history of paying bills on time.
- Proof of steady income.
- The amount of down payment you’ve saved, along with a financial cushion for closing costs and other expenses you’ll incur when moving into a new home.
If lenders determine you are mortgage-worthy, they will then price your loan. That means determining the interest rate you will be charged. Your credit score largely determines the mortgage rate you’ll get.
Naturally, the lower your interest rate, the lower your monthly payment will be.
…Let us join your journey of getting your dream house!
Ana speaks 3 languages (Portuguese, English, Spanish), Wife, Stepmom, Journalist, Event Director for the National Association of Hispanic Real Estate Professionals (NAHREP) Central MA Chapter.
What is the first rule to recognize a Real Estate Agent? The first rule to recognize a real estate agent is to check their credentials and licensing. ...September 22, 2023
How To Know A House Is Right For You. Finding the right house for you involves a combination of careful consideration, research, and personal preferen...September 21, 2023
How do you know if something is wrong with your house? Detecting potential issues or problems with your house is essential for maintaining its safety,...September 15, 2023
What are the 3 most important things when buying a house? When buying a house, there are several important factors to consider, but if you had to narr...September 14, 2023
What are the biggest red flags in a home inspection? During a home inspection, several red flags or warning signs can indicate potential problems with...September 8, 2023
Avoiding overpaying for a house is crucial for a successful real estate purchase. Here are seven strategies to help you avoid overpaying for a house [...September 7, 2023
Can a loan be forgiven after death? In most cases, a loan does not get automatically forgiven upon the borrower's death. When a person takes out a loa...September 1, 2023
The Top 5 Reasons to Hire a Real Estate Agent[read more]August 31, 2023
How to make money selling house. Making money by selling a house involves a combination of factors that contribute to a profitable sale. Here are some...August 25, 2023
How long is a Verified Approval Letter good for? A Verified Approval Letter is typically associated with mortgage pre-approval in the context of the r...August 24, 2023
What is a seller credit at closing? A seller credit at closing, also known as a seller concession or seller contribution, refers to an arrangement in ...August 18, 2023
What are the 4 types of mortgage loans? There are several types of mortgage loans, and they can vary based on factors such as interest rates, payment ...August 12, 2023
Mortgage fraud is a serious crime that involves intentionally providing false or misleading information during the mortgage application process to obt...August 10, 2023