You’ve found it!
The home you’ve been searching for is for sale and you want to buy it.
Can you afford it?
How can you tell?
First of all, the Internet is full of ways to calculate how much a mortgage will be. You can click on any mortgage calculator—like this one at Bankrate or this one at the Mortgage Calculator — plug in the potential numbers and check out the results.
What you’ll get is a box to plug in the mortgage amount, interest rate, term (in months) and start date. You’ll get a number that gives you principal and interest payments amortized for the life of the loan.
What you won’t get is what buying the home really costs.
Nor will you learn if you can qualify for the loan.
What the number you get will tell you is if you’re even in the ballpark. In general, if you have decent credit, you should calculate your mortgage payment at no more than 28 percent of your gross income. Of course, if you’re debt-to-income ratio is very high, your mortgage should probably be even less.
The bottom line is that even if you think you can afford higher payments, the people that loan money have lots of facts and figures on their side (called actuary tables) that tell them the risk is high for default if your debt-to-income ratio is high.
You also need to factor in the other costs of buying a home such as homeowners insurance, any association dues (for condominiums or neighborhoods with shared-responsibility common areas), the closing costs, money to set aside for future maintenance (new roof, gutters, paint, etc.) and extra purchases that you might have: think new furniture, a lawn mower, plants for the landscaping, etc.
If you’re truly ready to buy a home (meaning you’ve saved up some money for a down payment and have paid down your credit cards and car payment so that your debt is low) take the time to talk to a mortgage lender to see if you can get pre-approved for a loan. Once they put in the numbers (your income, expenses, debt, etc.) they can give you the actual amount they believe you can afford on a monthly basis.
Additionally, if you have a pre-approval letter, (aka by me, your house shopping ticket) you can be confident that when you submit an offer it will get a serious review!
If you have questions about getting pre-approved for a loan, give me a call. I can point you in the right direction.