There are a number of factors that
can contribute to the affordability of a house and, as a potential homebuyer,
it's important that you know what type of mortgage payments are within your
budget.
Debt-To-Income Ratio
As a homebuyer, your first
consideration will be the amount of your monthly mortgage payments. If you owe a lot of debt, lenders may
consider you to be a high credit risk, which makes debt-to-income ratio a
leading factor in determining how much of a house you can afford.
Most lenders will discount any
loans that you will have paid off within one year when determining how much of
a home you can afford. As a general
rule, your mortgage payment should not exceed 25-30 percent of your monthly
take-home pay.
Loan Term
Although you will end up paying
more interest in the long run, you will find that you can afford a more
expensive house if you request a loan term of 25-30 years, compared to a
shorter term of 15 years.
Interest Rates
When you look at an interest rate,
all you see is a number. Hopefully,
it's a single digit that's comparable with current market rates. Most homebuyers already know that their
interest rate affects their monthly payment which, in turn, is determined by
the borrower's income. Lower interest
rates mean that you can afford a larger principal loan amount, which means a
more expensive house.
Credit History
Because your past credit history
will play a large role in determining your interest rates, it will also impact
the affordability of a house. For
instance, a buyer who pays six percent interest will save a considerable amount
of money over a buyer who pays eight percent interest on their home loan. It may not seem like much now but, when
averaged over time, the savings could be tremendous.
Down Payment Amount
Believe it or not, the amount of
your down payment will not only show the lender how serious you are about
buying a home, but it will also affect your ability to afford a particular
house. For instance, if you were to
qualify for a home loan of $200,000, but your dream home was currently listed
for $250,000, a down payment in the amount of $50,000 would get you into the
home.
The above scenario is just an
example, but it does show how a down payment can affect the price of the home
that you are able to afford. Some
lenders may only require a five percent down payment, but you are free to pay
as much above that as you wish. A larger
down payment can also reduce the principal loan amount, which thereby reduces the
monthly mortgage payments.
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For more information, please visit my website at www.valeriemcconville.com
