How Much Can You Afford in a New Home?
You’re finally feeling confident in buying a new home, but where do you start? First things first, you need to set a budget. How do you know what your house-hunting budget should be? The West Palm local movers want to ensure that you are searching for a house within your means, and that you also perform affordability calculations before you start shopping for a mortgage. A home is a huge investment and it requires plenty of research and diligence on your part. Luckily, we have tips on how you can manage the process and become a savvy homeowner.
One of the first factors a potential lender will look at is your debt-to-income ratio, or DTI. This measurement is utilized to ensure that you’ll have enough income to cover both your new mortgage payment and any existing monthly debts such as credit card, auto loan, and student loan payments, among other monthly expenses you manage. Most lenders want your DTI to be below 36 percent, showing you have plenty of cushion to pay for emergencies and to cover your monthly mortgage payment.
Credit scores pay a large role in the mortgage game as well. Your credit scores is based on your payment history, overall level of debt, length of credit history, types of credit and applications for new credit. If your credit score falls within an undesirable range or includes unfavorable marks, traditional lenders might be leery of approving you for a loan.
You may be able to obtain a loan, but you’ll likely pay a higher mortgage rate, which will ultimately result in a higher mortgage payment. It is wise to pull your credit report and check for any errors or things that need to be corrected in order to potentially raise your score.
Prepare a down payment. With the exception of Veterans Affairs (VA) loans and some special programs for first-time buyers, a home purchase requires that you have some cash on hand. How much? Anywhere from 3.5 percent of the sales price for a Federal Housing Administration (FHA) loan to as much as 20 percent for a conventional loan. Expect to get a better interest rate if you’re able to make a down payment of at least 20 percent.
Remember, having a home mortgage is a huge commitment. If you have less-than-amazing credit, then you may want to consider waiting to purchase a home and making changes in your spending habits to improve your credit score. Many experts suggest before you even consider buying a home, you should be debt-free and have three to six months of expenses saved — in addition to your down payment and closing costs.
Good luck on your home search and remember, rushing the process or biting off more than you can chew can lead to foreclosures and other real estate distress. Be patient and the right home will come to you.