How much house can you afford?

Buying a home is one of the most important decisions you make. This is not a simple decision and it should be based on multiple factors. Despite its complexity, the process starts with a very simple question: how much house can you afford? This is the simplified answer: you can afford a house that costs as much as the largest monthly mortgage payment you qualify for.

Before you make any decisions and start shopping for a mortgage you should gather the financial information that allows you to do the affordability calculations. Mortgage companies use something called qualifying ratios to determine how much they will lend you. The ratio is calculated by taking your total monthly debt load and dividing it by your monthly gross income. Most mortgage companies use a 28/36 ratio. The first number is the percentage of your gross income that the lender would consider acceptable as a monthly mortgage payment ((i.e. if you make $3,000 per month, 28% of that is $840 per month).

The second number is used when all debt payments are considered (i.e. if you make $3,000 per month, but also have a $250 a month car payment, 36% of $3,000 is $1,080, minus the $250 car payment equals $830). Generally most lenders want your debt-to-income ratio, including your anticipated new monthly mortgage payment, not to exceed 36 percent.

In order to approach home ownership the right way, you have to think long term. The cost of homeownership extends beyond the monthly payment and includes routine maintenance and repairs, homeowners association dues, and additional utilities that you might not have paid while renting. You also have to consider your credit score. The best thing to do with a less-than-perfect credit score is to wait, while making changes in the spending habits to improve the score. Experts suggest, you should be debt-free and have three to six months of expenses saved in addition to your down payment and closing costs, before you consider buying a home.

If you are looking for a home in the North Myrtle Beach area, give us a call at (888) 249-2100 or visit CENTURY 21 Thomas search page. Click here for real estate mortgage information.

Note: The purpose of this information is to serve as a useful guide. For more exact, personalized information, please contact a certified mortgage representative.