How Much Home Can I Buy?

Everyone’s situation is at least a little bit different when it comes to purchasing a home. Many factors can influence the particular aspects of your situation and your ability to buy a home that’s in your budget. Seeking to understand the factors that impact your budget is an important step to finding the right home for your future.

4 Major Influences On Your Home Buying Budget

1. Cash on hand. At the end of the day, having more money on hand positively affects the mortgage options available to you. Making, for example, a 20% down payment can significantly decrease your monthly mortgage payment and make the process a little smoother. It can also open up different types of loans as financing options.
2. Your income. Your income is vital to determining what you can afford. Additionally, different types of incomes may introduce additional complications to the mortgage process. For example, self-employed income is not treated quite the same as a traditional 9 to 5 job. Without getting too specific about income, we invite you to talk with a qualified mortgage broker or other professional to give you an accurate picture of your unique needs.
3. Your liabilities. Your debts and expenses are another crucial factor when it comes to determining your budget. A high income can easily be reduced by significant monthly expenditures. Monthly obligations like car payments, credit cards, student loans, and other debt can impact what you can afford.
4. Your credit score. A credit score is a statistical measure of your ability to repay an obligation. It offers a glimpse of your qualifications as a borrower. A healthy credit score indicates a better propensity to pay your debts and looks more appetizing to a potential mortgage lender. Poor credit indicates that the risk for not repaying the mortgage is higher than it may otherwise be, and this can affect interest rates and other terms.

Calculate An Informal Budget

You can do a quick calculation of what you can afford. While this will not substitute for professional advice from one of our qualified mortgage brokers, this can get you on the path to understanding your budget.

To begin, first calculate your net income (after taxes, pre-tax deductions) or take home pay for your household. Don’t forget what your spouse makes if you are married. Next, take a look at your bank accounts and determine what your down payment will be. Also consider the associated costs of owning a home like HOA fees, insurance, and more.

After that, consider your term duration. Typically this is either 15 or 30 years.

Lastly, figure out all of your expenses. You need to track the amount of money going out each month in relation to the amount of money coming in (your net income). There are many tools out there that can help with the process, but you can subtract your expenses from your net income to get an idea of how much of a monthly payment you can afford.

Once you determine a comfortable monthly payment, then you can use available tools (Google even has one in their search feature) to calculate a monthly payment amount that meets your budget. You can quickly search for ballpark loan interest rates, but keep in mind that the factors above will influence your ultimate rate, which may be higher or lower than many places advertise.

If you feel comfortable with what you have uncovered, then it’s time to speak with a mortgage broker like Range Lending.

Next Step: Pre-Approval

Obtaining pre-approval is a great idea for a number of reasons. First, you are now talking with a professional mortgage broker who can give you a better and more accurate picture of your budget. Secondly, a pre-approval indicates to potential sellers that you are serious about buying a home. Lastly, it can help shore up an offer on a home, particularly in a competitive real estate market.

Pre-approval is good for around 60-90 days, but a significant shift in your financial situation can necessitate revisiting the pre-approval if anything changes.

Range Lending works closely with buyers to help them obtain pre-approval. We recommend not skipping this part of the process, particularly when it comes to a competitive market like the current one.

Knowing what you can afford is important when it comes to buying your next home. Range Lending seeks a transparent process where you can understand what is going on and feel comfortable knowing that your mortgage broker has your back. After all, buying a home is one of the biggest financial decisions that you will ever make. So make sure to work with the best, like the brokers here at Range Lending.