Home Buying: Do You Know What You Can Afford?

Home Loan FinancingIf you are serious about buying a house, you should do more than checking and managing your credit. While having a high credit rating has its upside, you shouldn’t forget to determine what you could comfortably afford. Before you start looking for potential houses, you need to know how much house you can afford to avoid disappointments or costly mistakes in the future.

Monthly Income and Expenses

When deciding on an amount, consider your monthly income, budget, and debts. You should also look at how much you spend on renting and housing every month. It is best to follow the 28/36 rule, which states that you shouldn’t spend more than 28% of your gross income on total housing expenses and no more 36% on total debt, including recurring ones and other housing-related expenses.

Consult a Reliable Lender

You can use a home affordability calculator to give you an idea of how much loan you can borrow. Mortgage companies in Guildford note that you can also talk to a lender who will consider your debt-to-income ratio, so you’d know how much house you could qualify for. Lenders will give you a mortgage estimate along with your estimated monthly payment for a specific period of time.

Don’t Max Out Your Budget

Even if you qualify for a bigger loan amount, you don’t have to buy a significantly bigger house or max out your budget. If you, for instance, qualify for a $300,000 loan and the house you want costs $200,000, it is best to stick with that house instead of looking for a larger and a more expensive property. Keep in mind that a bigger loan translates to bigger monthly payments and fewer savings.

Save More Money

When setting a budget, it is also helpful to look at other areas where you could save or cut back on spending. If you are used to eating out a lot several days a week, you may cut it down to once or twice a week and learn how to cook. The same is also true for other luxuries like buying an expensive coffee every morning or going to the cinema every week.

Do your homework and contact a reliable lender to learn more about the buying process. This is to know what you can expect and avoid costly buyer mistakes.