There are many factors that impact your ability to buy a home and the budget that you can afford. Everyone’s financial situation is different and when it comes to buying a house. It’s important to know the factors that impact your budget and more.
Factors that Impact Your Home Buying Budget
- Your Income: Your income is a key factor in determining what is or is not affordable for your financial situation. Additionally, self-employed income introduces other complications in the process. Make sure to speak with a mortgage professional to understand your particular needs as it relates to your income.
- Saved Cash: Your ability to bring funds to the closing table can drastically impact affordability. With more reserves available for a down payment and to cover closing costs, you start to have more options when it comes to what you can afford to buy.
- Debts & Expenses: Your debts are a critical piece of the affordability calculation. Mortgage experts will look at your monthly obligations as it relates to credit cards, car payments, student loans, etc. Your ability to answer the “how much home can I afford” question is significantly impacted by debts.
- Your Credit Score: Your credit offers a glimpse into your qualifications as a borrower. Poor credit candidates present a higher risk for lenders because they don’t offer lenders a strong enough track record of paying off debts. Making sure your credit score is healthy will drastically improve your ability to get a loan and at the best rate possible.
Do Your Own Calculations
It’s important to do your calculations. Start by looking at your budget and figuring out the net income you, and a possible partner, earn each month. Then, identify the amount of your down payment and possible housing costs. Housing costs can include but are not limited to, property tax, HOA fees, home and property insurance, and more. Know the loan term you prefer; typically 15 or 30 years. Finally, gather all of your expenses. You’ll want to know how much they are costing you. This is any and all money that goes out. Total it up and come up with a monthly total for expenses. Make sure your numbers are as accurate as possible. You can put these numbers in a home affordability calculator.
Get a Formal Preapproval
When you are serious about buying a home, it is imperative to get preapproved. The preapproval letter is the first step in the home buying process, and it helps position you as a serious buyer who is ready to take the next steps to buy a home. Some real estate agents will require this before any home visits are scheduled. On average, a preapproval is good for 60-90 days but will depend on the lender you decide to work with. Additionally, if your financial situation changes in any significant way, you may need to go through the preapproval process again.
Identifying how much home you can afford is important. Know the measures you can take to make it easier on yourself and check out our FAQ page. This is one of the biggest investments you’ll make in your life so picking the best mortgage lending partner possible can make the difference.