You’re looking to make the biggest purchase of your life – a house – but you’re not sure what you can afford. Pinning down that answer involves coming up with a game plan.
As part of that plan, you need to consider several variables that will impact just how much you can pay without breaking the bank. Let’s take a look at some of these key factors.
Income – Whether you’re looking at this monthly or annually, income plays a major role in determining affordability. The income of you and the co-borrower (if one is involved) need to be taken into account, including base salary, bonuses, commissions, overtime, tips, as well as other sources such as investment income, child support, and rental income.
Debt and expenses – This includes, but is not limited to, car payments, student loans, credit card payments, rent or current mortgage payments, and other personal loans that are due on a regular basis.
Down payment – The larger the amount you can put down on the home, the lower the loan amount you will need. Typically the more money you can put toward the purchase, the better your chances to buy a higher-priced house.
Credit profile/history – The amount of debt you have, coupled with your credit score, will influence a lender’s decision regarding how much you can borrow. If you have a good credit history, you’re likely to get a lower-interest rate on the loan.
Keep in mind that if you’re a first-time homebuyer, there are options for obtaining lending assistance, such as through government programs. For instance, funds may be available to assist with down payments.
And when determining what you can afford, don’t lose sight of future goals and unexpected expenses, such as returning to school or replacing worn-out household appliances. Consider giving yourself a financial cushion rather than going with the maximum affordable amount for a home loan.
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