To determine how much house you can afford, there are key factors to consider, such as the total household income, monthly debts (i.e. car loan or student loan payments), and savings. Those considering buying a home should think about the level of monthly mortgage payments they will be comfortable sustaining. Will you be able to uphold the lifestyle you are accustomed to or want with those costs? Even with stable income and minimal debts, it is important to note that unexpected expenses are inevitable with homeownership, some of which can significantly impact your savings.
Breaking Down Homeownership Affordability
Generally, it will be smart to have three months of payments, including your housing payment and other monthly debts on hand as means to cover your mortgage payment in the event an incident were to arise. It is always better to be safe than sorry and be overly prepared.
It is common for banks to calculate your loan qualification by comparing your total monthly debts to your monthly pre-tax income. Your credit profile will also play a key role. Sometimes people can qualify at a higher ratio; however, typically the housing costs will not go beyond 28% of the monthly income. Therefore, you can also determine a good housing budget by multiplying your income by 0.28.
Another rule of thumb is if you can easily put a 20% down payment on a home, you can most likely afford it. You can speak with your realtor to help you determine more personalized affordability factors. It is important to consider your entire financial situation to determine your true home affordability.
Other Considerations
There are online home affordability calculators you can use to help you find an appropriate price range based on your lifestyle and unique situation. This will ask for your monthly obligations to determine if the cost of a home is realistic for you.
Note that when banks evaluate your affordability, they use current outstanding debts, and do not take into account the money you may want to set aside every month for more personal reasons, such as for a retirement fund or if you’re expecting a baby. There are many reasons you may want to save additional funds. That is why it is so important to understand how taking on a mortgage debt will affect your personal expenses, savings, and life. When thinking about buying a house, the first step would be to reach out to a lender to see how much you might qualify for and then go from there to know what kind of range you should be shopping in. Keep in mind you will need to budget for your home mortgage interest rates the lender will be charging you that will be factored into your monthly payment.
About Sine Insurance
At Sine Insurance Group, we are dedicated to providing you with custom-tailored insurance policies to protect your assets. Our comprehensive packages have been expertly crafted to serve St. Louis and the surrounding areas for the past 25 years. For more information about our products, contact us today at (855) 700-0889.