If you have ever asked yourself what is the "First Step" in buying a new home, the answer is to determine how much house you can afford? Remember the days when families would sit around the kitchen table and discuss the family budget? It is ok if your too young to remember, the point is, this is a crucial first step in determining how much you should spend on a new home. Today, this step is done on a family computer accessing the many mortgage loan calculators you can find on the web.
Please note: the type of calculator I am talking about is the one that starts with your INCOME, DEBT, DOWNPAYMENT, AND MORE. Not the calculators that just estimate payment.
I am here if you have any questions or want assistance, do not hesitate to call Lisa/Broker, Trust Lending Solutions, call direct: 818-359-4145
Here is a brief explanation of each Mortgage Loan Calculator Factors for determining your max purchase price!
Mortgage Loan Calculator Factors
Annual Income
Your annual income is one factor that a lender considers when establishing a baseline for what you can afford to pay every month. When calculating your annual income, you should consider any money you receive on a regular basis, such as your salary or income from investments. It should include your income and your co-borrower’s income if you are buying a home jointly.
Monthly Debt
How much debt you have directly affects how much house you can afford. When determining how much house you can afford, a good guideline to follow is the 36% rule. Your total monthly debts, including your projected mortgage payment, credit card payments, car loans, student loans, and child support, should not exceed more than 36% of your gross income. This is your debt-to-income (DTI) ratio. The lower your DTI, the more money you can borrow and the more options you have for loans.
Once you input your information into our mortgage affordability calculator, we estimate the amount of house you can afford based on a DTI of 36%. If you want to increase your DTI, you can slide the bar to see how it affects the amount of house you can afford. Most loans require that your DTI does not exceed 45%.
Down Payment
This is how much you expect to put down or contribute to the purchase of your home. Whatever you do not put down, the balance will be financed. Many mortgages require as little as 3% down, which may allow you to purchase a home if do not have a lot of savings or you simply want to leave some money in reserves.
Your down payment plays a big part in our affordability calculator. The more money you put down, the more house you can afford to buy. If you do not have a lot of money saved, you could still get a mortgage with little-to-no money down; it would just decrease the amount of house you could afford to buy. You can use money from savings, investments, or other sources to make up your down payment.
It is recommended that you put down 20% of the home’s purchase price; however, through an FHA loan you may be able to put down as little as 3.5%. Members of the armed services can even obtain a home loan without putting down any amount.
Interest Rate
Your mortgage interest rate makes a difference in how much you spend on your home. Our mortgage affordability calculator has a preset interest rate of 4.000, but you can easily adjust that rate according to today’s estimated interest rates. Interest rates change daily, and your lender determines your interest rate based on your credit profile.
Loan Term
How long do you want to finance your home? The longer your loan term, the more house you can afford. The shorter your loan term, the less house you can afford to buy unless you increase your down payment.
Our affordability calculator assumes a 30-year term, which is the most common type of home loan. You can edit your loan term to a 15-year loan or other type if you wish.
Plug and Play
After entering the above information, and your home price estimate should appear. Adjust the numbers as often as you like until you get a price you believe you can live with.
No one expects you to be a mortgage expert overnight, no matter how many calculations you make. That is why it is vitally important to work with a lender at the very beginning of the process. He or she may have information about down payment assistance and other financing incentives, like lender-paid buydowns, to help you comfortably finance your home purchase. They know the lending rules of the road better than anyone.
A knowledgeable lender can also help you anticipate your true housing costs, beyond just paying your mortgage, making you aware, for instance, of the cash you should have set aside for home maintenance and repairs.
Lastly, work with a reputable lender who not only will walk you through the math and tell you the maximum mortgage you can qualify for, but also will counsel you to select only the mortgage that you feel you can afford.
Learn How Much House You Can Afford Before You Act
Take the First Step with Our Home Affordability Calculator
Keep in mind that our house affordability calculator only provides an estimate of what you could afford. You can call me today to get prequalified and to find out how much you can spend on a home.
You should also bear in mind that your mortgage payment includes not just principal and interest, but also taxes and insurance in most situations. Think of the acronym PITI, which stands for principal, interest, taxes, and insurance.
For property tax information, consult the property profile offered by Trust Lending Solutions. The cost of insurance includes your homeowner’s insurance premium, and, when applicable, any mortgage insurance premium and homeowners’ association fees.
Please call me today to get pre-approved and to find out how much you can spend on a home. Lisa/Broker, Trust Lending Solutions is a dba of The Bani Group, Inc., Call Direct: 818-359-4145 or email Lisa@trustlendingsolutions.com
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