How much home can you afford?

One of the first questions people ask when starting the home buying process is “how much home can I afford”. When you are ready to begin looking at various houses to find your dream home, you need to prepare all of the necessary materials to present to the lender. Your lender will tell you exactly what you can afford so that you do not spend time looking at “too much” home. There are three key factors that you will need to consider when determining how much home you can afford. These are 1.) the down payment, 2.) your ability to qualify for a mortgage, and 3.) the closing costs associated with your transaction.

Down Payment Requirements:

Most loans today require a down payment of between 0% and 5.0% depending on the type and terms of the loan. It is often thought that bigger is better when it comes to down payments. In many cases, this may be true. However, the arithmetic will differ from case to case. A bigger down payment means smaller monthly payments and lower interest expense for as long as you remain with a mortgage. This can be an important factor for many people. But if you can put your available funds to work for you so that they can earn more than the interest rate on your loan, you could be dollars ahead with a smaller down payment. Also, a smaller down payment may allow you to keep you extra cash liquid and available for an emergency.

Closing Costs:

Don’t forget to think ahead carefully. In addition to the down payment on your dream home, you will be required to pay fees for loan processing and other closing costs. These fees must be paid in full in cash at the time of the final settlement, unless you are able to include these in your financing. Typically, total-closing costs will range between 2-5% of your mortgage loan.

Qualifying for the Mortgage:

Most lenders require that your monthly payment range between 25-28% of your gross monthly income. Your mortgage payment to the lender includes four items….the PITI. These items are discussed in detail on the page entitled, “Predicting Your Monthly Payment (The PITI).” Remember, when you buy a home all interest is tax deductible, so you will qualify for a major tax advantage that will effectively increase your take-home pay. Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income. This is a general rule of thumb, but other key factors specifically determine your ability for a home loan. These factors are:

INCOME: History of employment, stability of income, potential for future earning, education, vocational training and background, and any secondary income such as bonuses, commissions, child support, etc. CREDIT REPORT: History of debt repayment, total outstanding debt and total available credit. If you have concerns about your credit report, consider contacting one of the major credit bureaus for a copy of your file: TRW (1-800-422-4879), Trans Union (1-602-933-1200), and CSC Credit (1-800-759-5979).ASSETS: Cash on hand, other liquid assets such as savings, checking, CDs, stocks, etc. PROPERTY: The home you are buying must be appraised to determine that it has adequate value and is marketable to ensure it will secure the loan.

Just because you qualify for a mortgage does not mean you have to buy to your limit. You personally know how much home you can comfortably afford.

© 2017 Houston Association of Realtors All rights reserved. Information deemed to be reliable but not guaranteed. The data relating to real estate for sale on this website comes in part from the Broker Reciprocity Program. Real estate listings held by brokerage firms other than Results Realty are marked with the BR logo and detailed information about them includes the name of the listing brokers. Listing broker has attempted to offer accurate data, but buyers are advised to confirm all items. Information last updated on 2017-05-25.

Quick Search


view all


Any

Any

No Min.

No Max.

Don't Miss a New Listing Again!

REGISTER NOW

Already registered? Login

FREE AUTOMATED EMAIL UPDATES
Sign in to take advantage of all this site has to offer. Save your favorite listings and searches – also receive email updates when listings you like come on the market for free!

*Contact Information NOT Shared*

Testimonials

"This is our second time purchasing a home with Marchel and our first time selling a home with her. She is always a pleasure to work with. We will be returning to her again next time we decide to move. Thanks Marchel!! " Kyle and Rachel Watkins
"Marchel did a fantastic job! She even pointed us in the right direction for our lender!" Billy and Holly Pampell
View All