Our clients are always interested as to how much house they can actually afford. Of course, it makes sense. Most people want to be able to stretch their money as far as possible.
The thing is, when it comes to calculating how much house you can afford, there are a few variables that you must take into consideration. These variables include:
- Household income
- Monthly Debts (student loan or car payments, for example)
- Available savings for a down payment
You don’t want to feel that you might not have enough money on a monthly basis to cover your mortgage payments. Here at EZ Lending Pro, we believe that it important that homebuyers feel comfortable with monthly payments.
As of right now, your household income and monthly debts may feel pretty stagnant, which is a good thing. The unfortunate thing is that unplanned spending and unexpected expenses can have a fairly significant impact on your savings.
This is why we like to provide people with a good rule of thumb:
You should have three months’ worth of payments, which include your monthly debts and housing payments, reserved in your savings. In case of some weird and unexpected event that takes a toll on your savings, you’ll be set.
Affordability and Debt-To-Income Ratio
Your debt-to-income ratio is a very important variable when it comes to calculating the amount of money that you will be able to borrow. To get this ratio, you will need to compare the total monthly debt to your monthly income before taxes.
You might be able to qualify for a loan at a higher ratio if you have a good credit score, though your housing expenses should not be greater than 28% of the monthly income you are bringing in.
Affordability With Different Loans
Now to calculate how much house you might able to afford, we want to assume that you put down the standard 20%. If so, a conventional loan might be your best bet.
On the other hand, if you are putting a smaller down payment on your home, anywhere down to around 3.5%, you might want to consider an FHA loan application. This is because FHA loans have lower standards for qualification. They are great for those who have lower credit scores too.
Of course, if you have a military collection, you may want to consider applying for a VA loan with the best Mortgage Broker Denver Colorado. These loans don’t typically require any sort of down payment.
Finding the Best Home For The Money
Here at NESWork, we know how important it is for our clients to get their money’s worth when shopping for a home. Getting the right loan and knowing what you can afford are two very important variables to consider when starting out the process.
If you are interested in learning more about the home buying process or you would like to get started with one of the best boutique lenders on the market, make sure to get in contact with us for your Free Consultation.