How Much Home Can I Afford
Step 2: Determine what you can afford.
Now that you’ve found a REALTOR, your REALTOR can guide you through deciding what you want or need and what you can afford. However, there are some crucial things to know before committing to owning a home.
When buying a home, a first time home buyer must have:-a guaranteed income and proof of that: when trying to get a loan, a lender will want proof that you are capable of paying back the loan. You will need to show copies of your pay stubs and proof that you receive a steady income.
-established credit history: A record of an individual’s past borrowing and repaying behavior, listing personal information, credit lines currently in the person’s name, and risk factors such as late payments or a recent bankruptcy.
-a good credit bureau score: A number representing the possibility that a borrower may default (miss a mortgage payment); it is based upon the borrower’s credit history and is used to determine his/her ability to qualify for a mortgage. An average, good credit score number typically lies around a 670.
Term to know:Debt-to-income ratio: A figure that calculates how much of a person’s income is spent paying his/her debts. The higher one’s debt-to-income ratio, the more of their monthly income that is solely devoted to repaying debts. DTI is often considered by institutions in evaluating loan creditworthiness; institutions conclude that if a person’s DTI is too high, they might not be able to repay their debts very easily, so the institution will be less inclined to make the loan.
To qualify for an FHA loan (A loan guaranteed by the Federal Housing Administration), the monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and total debts, including the mortgage payment, should not exceed 41% of income.
The debt-to-income ratio is the easiest and most effective way to determine what you can afford when buying a home. Remember, no matter how “dreamy” a home may be, you don’t want to over-extend yourself when trying to pay for a home. Once you determine this number, you can now determine what you’d like from a home within that price range (bedrooms, bathrooms, pool, etc).
My advice: Be realistic in determining how much you can afford.
If you missed the first post on step 1 of the first time home buyer process:
Phoenix first-time home buyer: Steps to take – Step 1
Keep an eye out for the next step a first-time home buyer should take when deciding to buy their first home.
Also, you may have noticed words in italics in this post, and you’ll see them in future posts. These are real estate terms home-buyers should be aware of. These definitions and more information can be found in my FREE ebook, 8 SECRETS to make buying your first home EASY. There’s no catch. Just sign up and I’ll email it to you! This is a great resource and opportunity for first time home buyers to learn more about the home buying process.
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