How Much House Can I Afford?
Determining whether your budget can include a house can seem difficult. Here’s some tips to make it easier.
The Actual Payment
It’s important to understand the difference between what you can spend versus what you can spend while still living comfortably. This comes along with thinking about limiting your financial stress. For example, let’s say that you could technically afford to spend $4,000 each month on a mortgage payment. If you only have $500 remaining after covering your other expenses, you’re likely stretching yourself too thin. Remember that there are other major financial goals to consider, too, and you want to live within your means. Just because a lender offers you a preapproval for a large amount of money, that doesn’t mean you should spend that much for your home. Here’s how to determine your own payments: https://www.businessinsider.com/personal-finance/how-to-calculate-mortgage-payment
Crunch Your Numbers
Figure out how much you (and your partner or co-borrower, if applicable) earn each month. Include all your revenue streams, from alimony to investment profits to rental earnings. Next, list your estimated housing costs and your total down payment. Include annual property tax, homeowners’ insurance costs, estimated mortgage interest rate and the loan terms. The popular choice is 30 years, but some borrowers opt for shorter loan terms. Lastly, tally up your expenses. This is all the money that goes out monthly. Be accurate about how much you spend because this is a big factor in how much you can reasonably afford to spend on a house.
36% Rule
Most banks don’t like to make loans to borrowers with higher than a 43% debt-to-income ratio. Although it’s possible to find lenders willing to do so (but often at higher interest rates), the thinking behind the rule is instructive. If you are spending 40% or more of your pre-tax income on pre-existing obligations, a relatively minor shift in your income or expenses could wreak havoc on your budget. It isn’t only in your lender’s interest to keep this rule in mind when looking for a house. It’s in yours too. Lenders tend to charge higher interest rates to borrowers who break the 36% rule. So, you’ll probably end up spending more on interest. This is especially true if you go for a house that places you beyond that limit. ?
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Call Lesa Miller at (812) 360-3863 or go online at HOMEASAP.COM/67278 where you can read her posts on other social media accounts and websites.