4 Factors to Consider When Determining Your Max Purchase Price
Blog posted On July 13, 2022
Buying a home is exciting, but it’s essential to determine how much house you can afford before starting the home buying process.
Below are important factors to consider before you begin your home search journey.
- Monthly Income – Lenders base the amount of mortgage you are approved for on your gross monthly income. It is recommended that your mortgage should stay around 28% of your gross monthly income and should not be more than 36% of your total debt that you carry. This ensures that you will have a monthly cushion that will help you cover unexpected expenses that may come up without having to worry about having the money to do so.
- Current Cash Reserves – How much money do you have saved up and available for a down payment and closing costs? This can include money you have saved up in your savings account, investment accounts, or gift funds. The amount of money that you have available for your down payment will affect the amount of house you can afford and get approved for. Check out our HomeFundIt™ gifting platform. It can help you save up for your down payment with the help of the people around you!
- Credit Profile – Your credit score and credit history are huge factors when a lender decides your creditworthiness when approving your application for a loan. These factors will help the lender determine how much money you can borrow and the interest rate you qualify for, influencing your monthly payment amount. In most cases, the better your credit score, the more favorable interest rate you will receive.
- Debt-to-Income Ratio (DTI) – Lenders review how much debt you have vs. how much income you bring in every month. To calculate this, divide the total of your monthly expenses by your total monthly pre-taxed income. Each type of loan will have a max DTI to be able to qualify.
Purchasing a home is one of the largest purchases that you will make in your lifetime, so it is important to make sure that you evaluate your finances closely to see what you can afford comfortably. Are you wanting to go into more depth about your financial situation and see if you are ready to apply for a home loan?
Reach out to a loan officer in your area to get all your mortgage questions answered. We are here to help you every step of the way!
Sources: Opendoor, Nerdwallet,