How Much Can You Afford?

Deciding how much house you can afford is a personal decision.  Many factors come into play.  How much can I borrow?  How much can I put toward my down payment?  What size monthly payment am I used too. What size monthly payment can I afford? 

There are no black and white answers to these questions.  Its a matter of give and take.  If you plan on a 30 year mortgage, you can probably make a lower down payment (or perhaps almost no down payment at all) and still manage the monthly payments.  If, on the other hand, you plan on a 15 year mortgage, you'll probably want to make a larger down payment to keep your monthly payments in line with what you can afford. 

How large a down payment can I make?

Many buyers look at their cash on hand as their only source for their down payment to go buy a house.  This simply is not the case.  One way to fund or partially fund a down payment is by using a gift.   FHA will accept a 5% gift. So will Fannie Mae but you will need your own 5%. Fannie Mae and Freddie Mac will also allow 20% gift and you will not need need any additional money towards the down payment. Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home. 

But these are not your only options.  We can help you explore all your down payment options, including low down payment and 100% mortgage financing options that might be right for you if you live in qualified areas. 

What size monthly payment can I afford?

When determining what size monthly payment you can afford, you'll want to consider what other monthly expenses you have.   Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford.  Usually I start the conversation by asking the customer, "How much are you paying in rent?

Usually if that person has been making rent payments comfortably it would be nice if they were able to get into a home of their own and have an equally manageable payment.

There are also the intangible expenses or lifestyle expenses that you'll want to consider.  Things such as dining out, travel and when you buy your next car can effect how much you can afford.  Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment?  If you have a car loan with less than 10 payments, we don't have to count this in your debt ratios

How much can I borrow?

This is a question you'll want to get answered before you begin your home search.   This is something that we're here to help you with.  Our mortgage calculators will help you see how your down payment, monthly payment and the amount you borrow are all interrelated.  As a rule of thumb, there are two ratios that we follow, a front ratio and a back ratio. The front ratio is your gross earnings compared to your housing payment and the back ratio is your housing payment and all of your debt compared to your gross monthly income.

Fha for example likes to see these ratios at 28% and 36% but I have seen loans go much higher.

When we gather all of your information we run your deal on line to an on line underwriting engine on the internet. The engine takes into account of all of your income, assets, credit and debts and gives us a feedback. Ideally it would like to see your two ratios at 28 & 38 but if the credit is good or the customer has a lot of assets, it will allow for higher ratios. Bottom line is that we have to run your deal on line to know where we stand. We can answer any questions you may have about the mortgage process.  But the best way we can help is by getting you pre-qualified for a mortgage loan.  To get started, simply complete the form below to let us know a good time to contact you.  We look forward to helping you buy your dream home.

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