We’re in a period where interest rates on the mortgage market are relatively low, and this means many are considering buying their first home or upgrading their current one. One of the primary areas you’ll be looking at in such a situation is how much you can afford to spend and how this will translate in terms of the home’s size and major features – in other words, how much home you can afford within your budget.
At Primary Residential Mortgage, we proudly offer numerous home loan programs to help you out here, plus expertise on how to translate your mortgage goals into practical outcomes. We’ll point you to several excellent resources when it comes to breaking down your finances and determining the homes you can afford, from our own expert staff to various online tools like mortgage affordability calculators. As a quick primer on the subject, here are some basics on three important factors that play a big role in how much home you can afford.
For starters, it’s important to realize that you have several potential options when it comes to the type of mortgage you choose – and these may cause your costs and price ranges to vary significantly. Most people are aware of the 30-year fixed-rate mortgage, which is the most common type and provides a constant interest rate over the entire life of the mortgage.
There are many buyers, however, who might be in a situation where a different loan type makes more sense – and benefits them financially. If you know you’ll only be living in this home for a few years before upgrading or moving elsewhere, you might consider an adjustable-rate mortgage that will usually come with much lower interest rates for the first several years. These rates will change after this period, but that will not have as large an impact on those who will be selling the home before then.
Most mortgage and financial professionals will tell you that your mortgage payment should not encompass more than 25% of your income, and certainly not above 30%. This payment includes not only the actual mortgage, but also taxes, homeowner’s insurance, HOA fees and possibly private mortgage insurance if you’re paying it.
In addition, you should also know your non-mortgage debt. Put together, mortgage and non-mortgage debt should not exceed 36% of your total monthly income.
Finally, like in many other mortgage-related situations, credit score plays a big role here. The higher your score, the wider array of loan programs you will qualify for – and you’ll also get better rates with lower payment numbers in many cases. If your score is low, consider tactics to boost it before applying for a new mortgage.
For more on determining how much home you can afford on a mortgage, or to learn about any of our mortgage loan services, speak to the staff at Primary Residential Mortgage today.
*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.