Qualifying for a mortgage and actually being able to afford it are two completely different things. Assume you qualify for a hefty mortgage. While your lender is prepared to offer you a large sum of money, that doesn’t imply that you have to borrow the entire amount if it will put you outside of your financial comfort zone.

Assessing how much you should spend on a property necessitates an examination of your current and projected future financial status. Consider these suggestions before taking out the largest loan possible and starting to look at more expensive residences.

Be Prepared for Potential Job Changes

How will you pay your mortgage if you lose your job? When you apply for mortgage approval, your lender will typically require a 2-year job history before granting approval. Will you be able to make the increased monthly payments if you obtain the maximum loan you qualify for during a period of unemployment? If not, you may want to consider purchasing a less expensive home.

Know Your Mortgage Options

The type of mortgage loan you apply for can have an effect upon how much house you can afford. As a result, as you begin your home-buying process, it’s critical to have a comprehensive understanding of what each financing option entails.

A conventional loan allows you to purchase a home with as little as 3% down. They may also have lower interest rates than other loan types, such as FHA loans.

A Veterans Affairs (VA) loan is a mortgage option made available to veterans, service members, and their (typically) unremarried surviving spouses in the United States. They are provided by traditional lenders. The loans are partially guaranteed by the US Dept. of Veterans Affairs. VA loans are no-money-down loans with flexible income restrictions and no necessary credit minimum – though most lenders do.

The Federal Housing Administration guarantees FHA loans. You may be a candidate for an FHA loan if you have a limited down payment and a lower credit score. A down payment of 3.5% is required by most lenders, as well as a credit score of 580, at the minimum.

USDA loan: A USDA loan is one that is guaranteed by the United States Department of Agriculture. If you intend to acquire property in a suitable rural or suburban region and have a low-to-moderate income, you may be eligible for a USDA loan. A USDA loan requires no down payment.

Jumbo loan: Jumbo loans, also known as Jumbo Smart loans, let you to borrow more than the existing conforming loan ceiling of $726,200. A bigger down payment is required – at least 10.01% for loans up to $2 million – as well as a credit score of at least 680.

Mortgage limitations are available on all three government-backed loans, which can help you keep within a reasonable debt-budget range.

Prepare for Emergencies

Emergencies happen when you least expect them: unanticipated medical procedures, unexpected job loss, a flooded basement, a car that breaks down. Putting all of your spare money toward mortgage payments rather than preparing for a rainy day can lead to disaster.

An emergency fund can be a valuable safety net for anybody, but especially for first-time home purchasers. A decent rule of thumb is to set aside three to six months’ worth of spending. If necessary, your emergency funds can be used to pay your mortgage, and having them set aside can give you a bit more peace of mind when evaluating how much you can actually afford to pay for a house.

Frequently Asked Questions About Home Affordability

Here are some frequently asked questions regarding estimating house affordability to help you better understand your purchasing power.

How much mortgage money can I get?

The specific amount you’ll qualify for will be determined by your financial situation and will differ from lender to lender. Starting the mortgage application process is the best approach to know how much mortgage you can qualify for.

Is my income the only factor in determining home affordability?

No. You should also consider how much debt you have, your income, and your preferred location. These elements can have an impact on how much house you can afford.

What should I spend on a new house?

The amount you should spend on a new home is determined by your financial status. Ideally, you should not spend more than 29% of your monthly gross income on your payment for primary housing expense. However, depending on your financial situation, you may be able to purchase a slightly higher-priced home.

Do I have to borrow the maximum amount available to me?

Rather than taking out a loan for the maximum amount you qualify for, refer to your existing budget to discover how much house you can afford and only buy houses that fit inside that budget. For most home buyers, this means selecting a home and mortgage loan that maintain total monthly payments at or below 29% of gross monthly income.

What if I require aid in purchasing a new home?

Most states offer assistance programs to make house ownership more affordable. Discuss the programs available in your area with your lender.

A Parting Word from Jerome…

The amount of house you can afford is determined by your financial status and personal preferences. It necessitates a more comprehensive decision than simply deciding how much money you want to spend each month on mortgage payments.

Consider the Costs of Homeownership

The truth is that owning a home is pricey. Those expenditures can quickly build up between repairs, renovations, and maintenance. Major house calamities can be covered by an emergency fund of 3-6 months of expenses. However, whether you’re planning any home improvements or are a first-time homeowner, save room in your monthly budget for unforeseen spending.

These expenses may include:

• Increased utilities: If you’re used to paying $100-150 per month on utilities as an apartment renter, you may need to increase that budget to $400 per month as a homeowner.
• House upkeep and repairs: The average homeowner spends around $3,200 per year on house maintenance initiatives. This could include gardening as well as routine maintenance such as pest control and HVAC tune-ups.
• Improvements and additions: Minor house improvements can be expensive, so factor that into your budget. A small kitchen remodel, for example, can cost more than $26,000.

Examine your entire financial status, including your ability to pay off a mortgage and where you need to save for other items. After you’ve done all of that, it’s time to look for the perfect home.