How Much House Can You Afford?
Really, this decision is not complicated … your lender decides how much you can borrow, and you decide what you can afford beyond the mortgage.
Lenders have regulations to follow when approving a mortgage loan, and they make qualification decisions based on averages and formulas. Beyond the numbers, they generally won’t consider your lifestyle and spending habits. So, you may want to leave a little room for the unexpected. A new home will cost you more than the mortgage - you have to keep in mind furnishings, landscaping, maintenance and repairs.
Historically, banks and credit unions use a ratio called 28/36 to decide how much you are allowed to borrow. With tis ratio, your housing payment can’t be more than 28 percent of your gross monthly income, and your total debt load (including car payments, student loans, and credit card payments) can’t be more than 26 percent.
In the past, some lenders have stretched these ratios to as high as 50 percent. You are urged to proceed carefully before stretching your budget quite so much.
Deciding how much you can afford should involve some careful attention to how your finances will change in the upcoming years. In the long run, your own peace of mind and security will matter most.
Tags: house, afford, lender, banks, credit unions, ratio, debt, mortgage
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