Bristol, Farmington, Burlington, Southington,
Plymouth and Plainville
Real Estate.
531 Broad St., Bristol, CT. 06010 Phone: 860-589-0101
Determine How Much You Can Afford to Pay for Your New Home
Before you shop for a new home, you need to determine how much you can pay. Looking at homes that are out of your range is a huge waste of time, and can lead to frustration, disappointment, and even feelings of depression.
So begin at the beginning, by determining just what you can pay.
Mortgage lenders have a rule of thumb that says most individuals can pay 2 1/2 times as much as their annual income. Thus, if you earn $100,000 per year, you could afford a home at $250,000. But this may or may not be true for you.
Your mortgage lender will first look at your monthly income. Your new house payment, including taxes, insurance and homeowner's association fees (if applicable) should not exceed 28% of that monthly income.
Thus, in the case of $100,000 annual income, you earn about $8,333 per month. 28% of that is $2,333.
Next, the lender will look at your other debts, such as car loans, student loans, and credit card obligations. After adding in these costs, your monthly debt payments shouldn't exceed 36% of your gross monthly income.
If your other debts are too high, the lender will make a downward adjustment in the mortgage loan amount for which you'll qualify.
After all these figures are compiled, you'll know what the mortgage lender thinks you can spend for housing each month, and the amount they'll lend you.
But that figure may not be the right figure for you to use.
Your lender doesn't know everything about your life, such as your hobbies, your debt tolerance levels, or your long-term savings/investment goals.
You may prefer to spend a little less on your home so that you can buy and restore antique cars, or travel to faraway places to scuba dive or golf on famous courses.
You may have an investment goal that over-rides your desire for the finest house; or you may just be very uncomfortable with a payment that exceeds 20% of your monthly income.
Only you can make that final determination.
Meanwhile, before you shop, do choose a mortgage lender and get pre-approved for your loan. Read "Pre-Approved or Pre-Qualified: Know the Difference" to see why.
