Uncertainty can make buying a home more arduous than it should be. Let’s take a look at some of the most frequently asked questions about mortgage affordability.
How Do I Determine My Housing Budget?
Many get stuck at this point because they want to “figure out” their finances before pre-qualifying for a mortgage. The thing is that doing a pre-qualification is precisely how you will “figure out” your finances. So the first step to determining your housing budget is to prequalify.
During the loan preapproval process, we’ll get an overview of your finances, letting you know how much money lenders might be willing to let you borrow. If something in your finances needs improvement or adjustment, we’ll let you know what and how to do it.
However, calculating affordability doesn’t end there. It’s possible that you qualify for more than you feel comfortable paying. If that’s the case, consider lowering your housing budget to one that doesn’t overstretch your family budget.
More on that below.
How to Figure Out a Comfortable Housing Budget
First, consider how much is your “take-home” pay. Many homebuying hopefuls miscalculate their budget due to using their gross salary, which does not account for deductions such as taxes, retirement, and medical insurance.
Once you know your take-home pay, look at your monthly financial obligations. List everything from credit cards to home streaming and internet to groceries and everything in between. Remember to include any savings goals too!
From this comprehensive list, subtract your financial obligations and savings goals from your monthly take-home pay to see how much you have available for a monthly mortgage payment.
Does this feel comfortable? Only you know the answer to that question.
How Lenders Determine Affordability
Lenders determine your home affordability based on your assets, income, and current debts.
More specifically, lenders want to know your debt-to-income ratio (DTI) and credit score.
Ideally, you want your DTI to be below 43%. However, there are loan programs available to those that are above this range. The same goes for your credit score. A high credit score helps to qualify for more, but there are loan programs for those with lower scores.
The bottom line is that there are several options, no matter your credit or monthly budget. It’s just a matter of applying to know where you stand.
What About Closing Costs?
There’s no set amount for closing costs as there are few variables that go into them, such as origination fees, discount points, appraisal fees, title searches, and taxes. You’ll have a full break-down of your closing costs before finalizing your loan –no need to worry about surprise fees on closing day!
We aim to make the home buying process as transparent and straightforward as possible. Use our online application to get an obligation-free preapproval and know how much home you can start shopping for!