When looking for a new house to buy, one question always comes to mind – what can I afford? The answer to this question depends on several factors. Buying a home is an important decision to make, so you need to do your research before buying it. You should get familiar with prices of homes in the local current market, and think about what is affordable to you, and what is not. If possible, buy when the housing prices are down, because you will get a better and larger house for the same amount of money compared to one in a booming market.
It is crucial to know what is going on in your local and national real estate market. Once you get a feel for the current housing conditions, you will gain a better understanding of whether now is the right time to buy a house or not. If you can’t afford to purchase a home outright, like most people, there are plenty of home loan options available. You can always go to your bank and ask for a mortgage loan. The amount of loan depends on your income, credit history, debt-to-income ratio, and the size of your down payment.
Most people are wondering – how much house can I afford? If you want to get an answer to this question, speak with a mortgage advisor. Before contacting a mortgage lender, write down your monthly household income, expenses, and your budget. Put everything on the list, including household supplies, clothing, car loan payments, credit card payments, child support, alimony, or any other regular monthly debt payment, to see what your situation is. This list will help both you and the lender figure out your mortgage payments. You will then find out how high of a monthly payment can you afford before becoming house poor.
The lenders usually require clients to put down 20% of the home value. The size of your down payment is a crucial factor when determining your budget for a home purchase. If you don’t have enough savings to make a 20% down payment, you can consider looking at non-standard loans, which require a down payment of about 5%. The main downside to this option is the higher interest rate. Therefore, before looking into your mortgage options, get your balance sheet calculations right, and make sure you know what you can and cannot afford.
Your monthly income, more specifically your positive cashflow, is also a very important factor in deciding how much house you can afford. Take into consideration credit card debts, other loans, and other monthly obligations. Check to make sue the interest rate on your mortgage loan is competitively priced in the market place for you personal situation. It is important you contact a few mortgage companies and find a home loan advisor that you trust, who can find the most suitable solution for your needs, and who has the experience and expertise to answer all your questions. For example, if you are risk adverse, go with a fixed rate mortgage. With it, you will pay the same amount every month, regardless of any market factors for the term of the loan. If you feel that interest rates are going to decline in the future, and are willing to take the risk if they don’t; a variable rate mortgage may be more suitable. Once you choose the right mortgage company and trusted loan advisor, you will be one step closer to buying your dream house.