How Much Home Can I Afford?
If you are preparing for a home search, you should ask yourself one question: “How much home can I afford?”
The answer to this question can prepare you for the options you’ll have and help you decide if now is the best time to begin your search.
How Do Mortgage Companies Determine Your Loan Amount?
Mortgage companies look at a variety of financial factors in order to determine how much home you can afford, and how much they trust you to repay the loan. These factors include your monthly income, payments, and your accumulated debt.
As a general rule of thumb, a mortgage company will want your total monthly expenses to make up no more than 35% of your pre-tax income. This number, along with how much you are able to put toward a down payment, how other mortgages in your buying area compare, and how high your credit score is, will all be key factors for determining your pre-approval rate.
Setting Your Home Expectations
As a real estate company in Birmingham, we highly recommend that any buyer get pre-approved for a mortgage before beginning their home search. With a pre-approved rate, we can really zero in on the exact homes you can afford rather than waste time touring ones out of your price range.
In order to find out what your mortgage rate really means for you, you will want to bring your wish list to a real estate agent. If you are looking for a 3 bedroom, 2 bath home with a large backyard, and are approved for a $150,000 mortgage, a real estate agent can show you the exact neighborhoods you should consider.
(But…Who PAYS the real estate agent?)
When people begin their home search before speaking to a mortgage company and/or a real estate agent, they risk developing too-high expectations for a home. If they do speak to a professional first, they are normally pleasantly surprised.
