How Much Home Can I Afford?
Generally, lenders want your monthly payment, including taxes and insurance, to be 25-30% of your gross monthly income. Your loan officer can help you determine what price of a home to shop for by reviewing your income, debts and credit. You can also apply for a pre-approval where the lender approves the loan for 90 days before you find a new home. Pre-approval makes your offer more attractive to a seller.
The amount of home you can afford is based on the amount of mortgage loan you can comfortably support. Generally, the amount of mortgage you qualify for is based on three factors: • Your monthly payments as a percentage of income. • How much cash you have for the down payment and closing costs. • Your credit history. What types of mortgages are available? • Fixed-rate mortgage. You pay the same interest rate and same monthly payment of principal and interest for the duration of the mortgage. The most common terms are 30, 20 and 15 years. Fixed-rate mortgages are best if you plan on being in your home for a while. • Adjustable-rate mortgage (ARM). The interest rate stays fixed for an initial interest rate period, which ranges from 1 to 7 years. Then the rate will adjust up or down annually for the life of the loan based on a specified index. An ARM is a good option if you believe interest rates will go down over the next few years or if you plan on staying in your home 5 to 7 years or l
