How Much Home Can You Afford?
You've decided that homeownership is right for you. You've been burning the midnight oil scouring the online multiple listing service and viewing oodles of for-sale home listings, pictures and virtual tours. You may even spend some weekends visiting open homes. But before you can go any further, it's time to get real and determine how much house you can afford.
For decades, figuring out how much you could afford to spend on housing costs was pretty basic: the general rule was that your mortgage payment should total no more than one-quarter of your monthly gross income. While that benchmark still is legitimate, given today's low mortgage interest rates and the vast array of mortgage products on the market, a number of variables can tweak the bottom line regarding how much house you can afford.
One of the biggest factors that will determine how much house you can afford to purchase has remained constant over the years and that is the size of your down payment. The more money you put down the house the less money you will have to finance. Down payment size also can affect the mortgage interest rate for which you qualify.
Other factors that will help determine how much house you can you afford to buy are your debt-to-income ratio, spending habits, credit score and your ability to cover closing costs. Now is a good time to consult with a mortgage professional who can help you analyze all of these factors, which combined will help determine the size of the mortgage loan for which you qualify and the type of mortgage that is best for you.