Probably one of the most important questions someone faces when they consider buying a home, is “can I really afford it?”. Budgeting is never easy, but we’re here to help you understand the basics so you can determine how much home you can really afford.
The first thing you want to understand is your debt-to-income ratio. This is simply your total income minus all your expenses. If you plan on having a co-buyer, you want to include the total of both your incomes and expenses. What you’re left with at the end of each month can help you paint the full picture of what mortgage payment will work for you that will still leave some breathing room for savings.
DOWN PAYMENT, INTEREST, AND TERM LENGTH
Next, you want to understand what you’re willing to put down, what interest rate you may qualify for, and the length of the loan term you would like to have. This is where a little strategy comes in and where an experienced Loan Officer can help you work out some different scenarios.
If you’re a first-time homebuyer, you can typically qualify for lower rates and lower down payment terms. Some programs may even allow as little as 3% down. Do you have any savings in the bank? Think about how much you would be willing to part with to put towards your home. When it comes to the length of your loan, the most common loan term is 30 years, but options for 15 or 20 years are also available.
Our affordability calculator also makes it easy to figure out how much you can afford.
ANNUAL TAXES, INSURANCE, AND OTHER EXPENSES
It’s also important to consider what you might pay in annual taxes, insurance, and for monthly utilities. If you’re not sure what the taxes and insurance might be, your Realtor or Loan Officer can help give you estimates on these numbers once you find a home you’re interested in.
Those sneaky closings costs. This tends to be overlooked when budgeting for a home, but this is probably one of the most important numbers to understand. Closing costs are typically 2% to 5% of the amount borrowed. You’ll want to make sure you have enough cash in the bank to cover both the down payment and closing costs.
Need more information about what is included in closing costs? Check out our blog articles Closing Costs Part 1and Closing Costs Part 2.
READY TO KNOW MORE?
We’re here to help walk you through the home buying process every step of the way and empower you to know your finances and feel confident with every decision. Especially when it comes to budgeting, there is never too much time spent understanding what you need. There’s no obligation to start a conversation; it’s worth it to have the knowledge for the future. Ask us about how we can pair you up with a loan officer today or apply now if you’re ready to get started right away!