Home Buyers: How Do You Know What to Spend on a New House?
Smart home buyers start their journey at the bank. Here they receive all of their financial information to get that magical number of how much is affordable according to their income and debt ratios. In today’s market, some lenders are ramping up to give more home buyers loans and even offering higher loan amounts than before. With this in mind, a buyer should look into what is actually affordable in a house payment.
A High Quote
Potential home buyers who are prequalified for a high amount may find themselves dreaming of a home that is out of their price range. Even though their credit is great and they have minimal debt does not mean they need to take on massive mortgage payments. Instead, start with a monthly budget and see where the income is spent.
Find a number that would be comfortable to allocate every month to a mortgage. Use this as a maximum monthly payment to get a better view of what homes to look at. Do not forget to factor in items like taxes and insurance. Those costs will be added on top of the mortgage each month.
Lending a Little Too Much
The real estate market has its ups and downs. There have been times where no one could get a loan without stellar credit and more than twenty percent down. Currently, lenders are starting to relax. They have budged on the twenty percent rule and are willing to work with those that have higher debt to income ratios or mediocre credit scores.
What Houses to Look At
It is tempting to start looking at houses that are more expensive. They have more to offer in terms of size and features. However, the extra cost monthly can really take a toll on a home buyer’s overall financial well-being.
Home buyers will not want to overextend to get a house that is too expensive. There are many homes for sale that are at lower price points that can fit the needs of the buyer just as well as a highly priced home. For this reason, it is important to keep the maximum monthly mortgage payment in mind when searching through homes. A home can always be updated or renovated to better fit the buyer’s desires.
When treading too close to the line a person may feel too strained to pay their mortgage payments. Anything that is over twenty-eight percent of the monthly income is too much. On average a buyer should not look at a house that is over two and a half times more than their annual take-home salary.
Home buyers will also want to always have a backup plan. There should be at least six months of income saved back in case of an emergency. This will help to create a buffer if there are any times where something is not affordable. Instead of facing foreclosure be prepared before starting the process.
More Money For Investing In The Home
By choosing a more affordable home it will be easier to update it. The extra money that would have been spent on a large mortgage payment can be invested back into the home. Home buyers will be able to put towards adding in a new pool, updating the deck, or renovating the kitchen. There is no need to rush to get all of this done at once. Map your projects out as the house can be fixed over time.
Home buyers often feel pressured to make a purchase while lenders are giving out loans with good interest rates. Every buyer should know their budget and see if a new home can fit into it. A lender can give a general quote of what is affordable but each buyer knows their spending habits and should make a judgment from their personal experiences with finances.