Home How do you Know how Much Home you can Afford?
November 24, 2016
When you’re getting pre-qualified for a mortgage, there are certain things that lenders look for and somethings they don’t. Is the loan amount you qualify for really what you can afford? Not necessarily. Let us explain.
What Lenders Look At
Lenders are looking at a few different things. They are looking at your credit score, how much debt you currently have and your income (how stable it is as well as how much it is). This is basically telling them how likely you are to make monthly payments until you’ve paid them back in full (don’t forget the interest).
Although they feel like you can afford “x” amount of loan, that may not be entirely the case.
Although all the numbers may say you can afford a certain amount, you actually may not be able to. Here are a few things you should consider when deciding how much you can afford to pay back:
Budget. How much money do you spend each month on necessities and extras. Are you a big spender? Are you an impulse buyer? Currently what percentage of your income are you actually left with by the end of the month? After answering these questions (while looking at your past few months of finances), you should be able to have a better idea of how much money you have in the month to spend and how much can be spent on a monthly mortgage payment.
Costs of home ownership. What extra expenses will you have with a new home? The mortgage payment isn’t the only new cost coming from your paycheck. You’ll also have taxes, insurance, utilities, HOA fees (maybe), home repairs, etc. Don’t discount these, otherwise you’ll be in financial trouble.
Savings. Will you be able to save with this mortgage payment? If you have no money left over to save, it’s not worth it. It’s important to be able to put a chunk away for the future, for emergencies, for retirement, etc. Don’t overlook this need.
You don’t want this mortgage to have you stressed out all the time, it’s not worth it! Sit down and study your finances. Just because you’ve been qualified for a certain loan amount, doesn’t mean you need to use it all. Decide what you can really afford before jumping in.
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If you want to learn about some financing options, or if you’re looking to get pre-qualified, contact Parker Turk at Sun American Mortgage Company: 602-616-3774.