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How Much Home Can I Afford? 3 Tips

How much House can I Afford?

This is the starting point when buyers decide to shop for their next home.  Deciding how much house you want to afford is a personal decision.  Many factors come into play.

How much can I put toward my down payment and closing costs?

What size monthly payment can I afford or desire?

How much can I borrow?

There are no black and white answers to these questions.  It’s a matter of give and take, an ordering of priorities if you will.

Should you plan on a 30 year mortgage, you can probably make a lower down payment (perhaps a minimum down payment) and still manage the monthly payments.  If, on the other hand, you plan for a 15 year mortgage, you may want to make a larger down payment to keep your monthly payments in line with your desired maximum monthly payment.

Know how much you have for a down payment and closing costs

Many buyers look at cash on hand as their only source for their down payment.  This simply is not always the case.

One way to fund or partially fund a down payment is by using a gift.   Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home.  Some employers have also been known to help key employees.  It never hurts to ask.

There are also down payment assistance programs offered through various Housing Authorities such as VHDA that can help you (this option is continually changing depending on funding and needs assessment).  Many of these programs have price and income limitations as they are designed for first time buyers or those that have not owned a home for a number of years.

And, of course, if you are selling a home, the equity you’ve built up can be applied to your down payment.

But these are not your only options.  If you own other real estate you can potentially utilize the equity in that property.  I can help you explore all your down payment options that might be right for you.

What size monthly payment can I afford?

When determining what size monthly payment you can afford, you’ll want to consider what other monthly expenses you have.  Tangible expenses such as car payments, day care, insurance and utility bills all play a role in how large a monthly payment you may want to afford.

There are also the intangible expenses or lifestyle expenses that you’ll want to consider.  Things such as dining out, travel and when you buy your next car can effect how much you’ll want to afford.  Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment?  To be in a specific neighborhood or school district?

Several years ago, I wrote about why you should select a home based on monthly cost and not sale price.

There is the pillow test.  When you lie down in your bed at night and your head is on your pillow, does the idea of this new mortgage payment allow you to sleep easily?  If it does, then the new mortgage payment has passed the pillow test.

How much can I borrow?  How much home can I afford?

This is a question you’ll want to get answered before you begin your home search.  Our mortgage calculators will help you see how your down payment, monthly payment and the amount you borrow are all interrelated.

This parameter will be determined by the automated underwriting systems: Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Prospector (LP).

I can answer any questions you may have about the mortgage process.  But the best way we can help you is by getting you pre-qualified and then underwritten and approved for a mortgage loan.  To get started, simply contact me.

I look forward to helping you buy your next home.

 

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