How Much Mortgage Can You Really Afford?
With rates as low as they currently are, many people are preparing to be first-time homebuyers. Buying, instead of renting, saves an average of $177,500 in rent alone over 30 years. Add to that the increase in equity and it’s easy to see why buying a home is preferable.
Buying your first home can be overwhelming, and one of the main questions people consider is how much mortgage can they afford? It is easier to calculate than you might think. There are a few variables that go into finding out the exact amount, so let’s go over them.
There are many different programs and loans available to first-time homebuyers, but that won’t help settle how much you can afford. In order to find out what you can afford you must know your total amount of debt payments and your household income. Only then can you deduce how much mortgage you can afford with any accuracy.
A General Rule
It is considered a general rule that you shouldn’t spend any more than 28% of your income on home expenses. Once you know how much 28% of your household income is, you have a good start point.
Affording your first home is made easier because you won’t have to worry about a large down payment in many cases. As mentioned earlier, there are assistance programs out there for first-time homebuyers to make purchasing your starter home easier.
At the High End
Putting more than a quarter of your earnings towards housing may be too much for you. Just because this is a general rule, doesn’t mean that it will fit your home budget. Also, remember that taking out a home mortgage comes with other expenses like property tax and insurance.
It is important that your new home doesn’t become a financial burden to you. If you find that your total debt payments with the new mortgage cost exceed 35-40% of your income, be careful. Paying for a home with this much of your income could become problematic.
Purchasing Your Home
Purchasing a home is a big step, so make sure that you work with someone that you can trust. A good home lender will provide you as a first-time homebuyer with several different options. There are many options, but the most common type of loan taken out is a 30-year fixed interest rate loan.
One of the best ways you can protect yourself and make an informed decision is by working with a company that you can trust. Reputable mortgage lenders will be able to walk you through the entire process of how to buy a home. Just make sure that you don’t bite off more than you can chew. A dream home can be something you work towards.
Peoples Home Equity is a mortgage lender that has a long history of success and transparency. Being a first-time homebuyer is an exciting time, and we want to make sure that you get the service and financial products that you need.
Contact us if you have any questions about the home buying process.