Most people buying a home find that they need to finance at least part of their purchase. This is one of the first steps to take in buying a new home.- figure out your financial situation and make a reasonable estimate on how you will pay for the purchase. Things to take into consideration are your income, credit rating, other monthly expenses, your down payment and the available interest rates.
How much can you buy?
1. Make an estimate of how much you can afford based on your income. The price of your home shouldn’t be more than 2.5 times your annual salary. A house payment should be no more than 25% of your gross monthly income.
2. Take a close look at your credit report because it’s one of the main measures lenders use to determine your interest rate. The better the credit, the better the lending terms. A higher interest rate means a higher monthly mortgage payment. You should obtain and review copies of your credit report from the three main credit report agencies- Equifax, TransUnion and Experian. The breakdown is as follows: Exceptional=above 780, Great=740-780,Good=690-740, Fair=620-690 and Low=below 620.
3. Take a look at your monthly expenses and assets. You will be asked to give a complete profile of your financial situation to your lender. The amount you will be able to borrow will be determined not only by your income but by your existing assets and debts as well. You’ll need to provide: Social Security number, W2 forms from the previous 2 years, most recent pay stubs, a summary of employment history, the last 3 months of bank statements (checking and savings), Creditor information (student loans, auto loans, credit cards), the past 2 years of Federal Tax returns and a complete record of assets (stocks, bonds, investement accounts, IRA / Retirement plans, life insurance policies, etc). If possible, you should avoid making a major purchase if you’re planning on buying a home in the next few months.
4. Talk to a qualified Lender. They will help you get a more accurate idea of what is feasble for you. You will be able to shop around for the best loan available.
Figuring out how much house you can afford is the first step when deciding to purchase a home. Keep in mind that theyre are just guidelines. There are many other factors that determine how much you can afford.
The Restivo Team would love to help you through the process, so send us a note or call us today! We can provide lenders for you to speak with and will help you find the home of your dreams.