Tips to Help You Determine How Much of a Mortgage Loan You Can Afford

Prior to shopping for a home to buy, you first need to determine how much you can afford. A good place to start is by learning about different types of home loans and their down payment requirements. Some might only require 3% down while others could require as much as 20%, so having this knowledge will be useful.
Mortgage Loan

  1. Prepare a list of your current monthly expenses. Remember to include car loans, student loans, credit cards, utilities, and rent.
  2. Calculate your debt to income percentage. Take your monthly gross income—income before taxes and deductions—and multiple it by 0.43. This amount should cover all of your monthly debts, including your rent.
  3. Are your debts more than 43% (0.43) of your gross income? If so, depending on how much, you may still be able to qualify for a loan—but be prepared for a higher interest rate.
  4. Don’t base how much you can afford on your rent alone. Many people forget there are other costs of owning a home, like property taxes, house insurance, repairs, and homeowner association fees.
  5. You will need to budget for a down payment and other costs. The more you can put down, the better, as it can help you avoid having to get private mortgage insurance, which is another monthly expense you have to pay. Plus, you need to set aside money for a home inspection and closing costs.

For more tips and help determining how much of a monthly mortgage payment you can afford, call Elite Financial at (800) 908-LEND (800-908-5363) or 805-494-9930 today!