How much Mortgage can I afford?
One of the first things you will ask yourself when looking to purchase a house is “How much mortgage can I afford?” There is not a simple answer to this question as each person’s financial and career situation is a major factor in calculating how much mortgage you can afford. Below are a few things to consider when asking others “How much mortgage can I afford?”.
Monthly Payment | How much mortgage can I afford?
Part of the question “How much mortgage can I afford?” is how much should the monthly payments be? Most financial experts say your mortgage payment should be ⅓ to ¼ of your monthly income. You will also want to take in consideration what payments you are already making, like a student loan or car payments. Even drawing up a quick budget to see how much money you need for the debts you already have and how much you need to live off of. Your lender will usually not try and burden you with a monthly payment which is more than you can afford, but you are the one who knows your goals, finances, and lifestyle best.
Different mortgage terms are also something you need to think about when calculating your mortgage and monthly payments. Most lenders will offer 10, 15, and 30 year terms. If you are interested in paying off your home early, or if you want to pay off your home before you retire, you may want a shorter term such as the 10 year or 15 year mortgage. Shorter terms will increase your monthly payment but may decrease your interest rate, which means you will pay less overall.
Most banks or lenders will take into consideration how much money you have in the bank and how much you are willing to use as a down payment. Banks and lenders feel more secure if you have a higher stake in the mortgage and higher down payments mean lower monthly payments. If you do not have a large down payment, there are down payment assistance programs which will help you. Be sure to ask the lender you choose to use about these programs and if they are right for you.
Your credit score is also a major contributing factor with how much the banks think you can afford in a mortgage. If you have a low credit score, your lender will see you as a higher risk. Higher risk loans have higher interest rates and you’ll pay more monthly and overall the higher your interest rate is. There are a few tricks you can do to improve your credit score and qualify for a lower interest rate. Holding off on buying a home for several months to improve your credit score can make a major difference in the long run and can save you a lot of money. Talk to your lender about what you can do that will make the best and fastest improvement on your credit score. Improving your credit score can be something simple like paying off your smaller debts or getting a credit card and using it responsibly.
Mortgage calculators can help you an estimate to your question “How much mortgage can I afford?”, but you won’t know for sure until you talk to a professional mortgage agent or loan officer. To be connected with some of the lenders we work with on a regular basis, contact us at 702-509-1446!
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