If you have always longed for a house, this is probably the best time to be a homeowner. Since mortgage rates are at an all time low and the price of homes is also low, you can work out to own your own dream home. But one important factor that needs to be answered is “how much house can I afford”. Due to the increase in the number of delinquencies, more and more existing homeowners are falling prey to foreclosure. So, there are many foreclosed houses that are waiting for a new owner. And the price of these homes is also less in most cases.
However, before you take the plunge evaluate your eligibility to get a mortgage and find out how much mortgage you can really afford. In order to determine your home affordability, there are few factors that can influence your query “how much house can I afford“.
Your income is an important factor that can influence your monthly mortgage payments and hence your home affordability. During a period when jobs are at stake, it is difficult to predict how long you will have a steady flow of income. Your income should be such that it can support your monthly mortgage payments, make sure you don’t fall behind on payments. You have to prepare in such a manner so that you can continue making payments for a period of 15 to 30 years.
2. Loan term
The loan term you opt for will determine your monthly mortgage payments. This is because if you are opting for 15-year loan term, the amount you pay each month will be higher but the mortgage interest rate will be lower. On the contrary, if you are opting for the 30-year loan term, the amount you are paying each month will be less but the interest rate will be high.
3. Mortgage rate of interest
The rate of interest is also another factor that will determine your home affordability. For instance, if you are opting for FRM or fixed-rate mortgage, you will be paying a fixed amount each month. On the other hand, if you are opting for ARM or adjustable-rate mortgage, you will be paying less initially but as the rates increase in the market they will determine your monthly mortgage payments too.
4. Debt-to income ratio
Your DTI or debt-to income ratio plays an important role in deciding how much house you can afford. A standard debt-to income ratio is 28/36. If your DTI is higher, you are a greater risk to a lender so you may not enjoy financial benefits as per favorable terms.
5. Credit rating
If you have a good credit score, your chances of taking out a mortgage as per your terms increase. On the other hand, if you don’t have a very good credit score, you will have to shell out payments as per higher interest rate. Lenders usually do so to minimize their risk.
Description: There are few factors that will be able to answer your query “how much house can I afford”. These factors will also influence your monthly mortgage payments. Check out the factors.