How Much Home Can You Afford?
Applying for a mortgage and buying a house is a major financial decision that can affect your bottom line for up to 30 years or more, so it is important to understand how much house you can actually afford. This week, we're taking a look at a few things you should consider when planning to buy a home at the Lake of the Ozarks to ensure you're comfortable with your home purchase.
Consider Your DTI
The first step in paving a smooth financial path for yourself is to add up your monthly income and expenses. Most mortgage lenders use the 28-41 rule to determine what you can afford and how much money they’re willing to lend you. The 28-41 rule states that your maximum household expenses shouldn’t exceed 28 percent of your gross monthly income. Your total debt, which includes everything from student loans to credit cards, should fall below 41 percent of your income. This number is your debt-to-income ratio, or DTI. However, in today’s new lending world, ratios have changed to allow more buyers to qualify for more home. Fannie Mae now allows up to a 50% back end ratio, FHA and VA allow even higher ratios.
Budgeting Basics
Your housing costs will be affected by your credit score and the size of your down payment. Include taxes, homeowners’ association fees, private mortgage insurance (PMI), if your down payment is less than 20 percent, and any other anticipated fees in the total cost. This will give you a clearer picture of how much you’ll be spending each month. Make sure to keep an eye on what the taxes, and HOA fees are for each home are. Two houses with the same price tag can carry different monthly costs due to these variables.
Plan for the Down Payment
One hurdle that many buyers face is the down payment. However new loan programs have really helped in this area. Conforming conventional loans now allow as little as 3% down, USDA and VA offer 100% financing. In the old days 20% down was the norm, however this may not be the best option for everyone. In some cases, putting less down and leaving more money in savings allows you to have money available in emergency situations.
Don't Over-Borrow
Keep in mind that just because you're approved for a certain amount doesn’t mean you should go for the maximum. Think about it this way: being house-rich and cash-poor can be an uncomfortable lifestyle that can ultimately lead to bankruptcy or foreclosure. So ask yourself these questions: Are you qualifying based on two incomes when later you may only have one? What about the cost of raising children or financing retirement? Do you have an emergency fund to keep the mortgage going in the event of a job loss? What happens if the house needs major repairs? Realistically, you shouldn't just think about how much house you can afford. As a smart consumer, you should consider how much house you can afford and be still able to pay for all the other things in life.
The bottom line is that there are multiple factors to think about when considering how much house you can actually afford and how much to put down. As you can see, it's not as simple as spending the maximum amount a lender will approve. Be sure to have a plan of action for unexpected expenses with a budget that you'll be comfortable with. And of course, when you're looking for a mortgage professional at the Lake of the Ozarks to work with, rely on Mortgage Headquarters of Missouri to have your best interest in mind!
Mortgage Headquarters of Missouri, Inc
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
Consider Your DTI
The first step in paving a smooth financial path for yourself is to add up your monthly income and expenses. Most mortgage lenders use the 28-41 rule to determine what you can afford and how much money they’re willing to lend you. The 28-41 rule states that your maximum household expenses shouldn’t exceed 28 percent of your gross monthly income. Your total debt, which includes everything from student loans to credit cards, should fall below 41 percent of your income. This number is your debt-to-income ratio, or DTI. However, in today’s new lending world, ratios have changed to allow more buyers to qualify for more home. Fannie Mae now allows up to a 50% back end ratio, FHA and VA allow even higher ratios.
Budgeting Basics
Your housing costs will be affected by your credit score and the size of your down payment. Include taxes, homeowners’ association fees, private mortgage insurance (PMI), if your down payment is less than 20 percent, and any other anticipated fees in the total cost. This will give you a clearer picture of how much you’ll be spending each month. Make sure to keep an eye on what the taxes, and HOA fees are for each home are. Two houses with the same price tag can carry different monthly costs due to these variables.
Plan for the Down Payment
One hurdle that many buyers face is the down payment. However new loan programs have really helped in this area. Conforming conventional loans now allow as little as 3% down, USDA and VA offer 100% financing. In the old days 20% down was the norm, however this may not be the best option for everyone. In some cases, putting less down and leaving more money in savings allows you to have money available in emergency situations.
Don't Over-Borrow
Keep in mind that just because you're approved for a certain amount doesn’t mean you should go for the maximum. Think about it this way: being house-rich and cash-poor can be an uncomfortable lifestyle that can ultimately lead to bankruptcy or foreclosure. So ask yourself these questions: Are you qualifying based on two incomes when later you may only have one? What about the cost of raising children or financing retirement? Do you have an emergency fund to keep the mortgage going in the event of a job loss? What happens if the house needs major repairs? Realistically, you shouldn't just think about how much house you can afford. As a smart consumer, you should consider how much house you can afford and be still able to pay for all the other things in life.The bottom line is that there are multiple factors to think about when considering how much house you can actually afford and how much to put down. As you can see, it's not as simple as spending the maximum amount a lender will approve. Be sure to have a plan of action for unexpected expenses with a budget that you'll be comfortable with. And of course, when you're looking for a mortgage professional at the Lake of the Ozarks to work with, rely on Mortgage Headquarters of Missouri to have your best interest in mind!
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
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