## How Much Home Can I Buy?

### How Much Home Can I Buy?

Posted by Jennifer Looper · on August 18, 2017 · in Jennifer Looper · with Comments Off on How Much Home Can I Buy?

How Much Home Can I Buy?

One of the most common questions a first-time home buyer will ask is “How much home can I afford?” The answer, as we will tell you, is that “it depends”. There are no fixed set of rules for how much home you can afford, or how big your mortgage can be. One of the reasons is because mortgage lenders determine your maximum home purchase price differently from how you might calculate it yourself via a mortgage calculator.

Debt-To-Income Ratio

When you ask a bank to calculate your maximum home purchase price, the bank will give very little consideration to your existing home hunt, or any properties on which you’ve considered making an offer. Rather than using a specific sales price, the bank will consider your annual income and your annual debts only. It will use that data to find the largest mortgage payment you could make without raising your debt-to-income (DTI) ratio above allowable maximums.

Now, once the bank has found your maximum mortgage payment, it uses current mortgage rates to “back in” to a loan size, which tells you how much you can borrow. This method of determining how much home you can afford is effective, but dangerous. It’s based on borrowing the absolute maximum for which you can get approved, which is often not advisable.

Therefore, consider a more personal approach to “How much home can I afford??

To do this, first, determine the maximum monthly payment you’d like to make each month. This will require thought and attention to your household budget. Then, using a mortgage calculator, plug in your desired payment and today’s mortgage rates to find the loan size that kind of payment will afford. For example, if you budget for a monthly housing payment of \$2,500 with four percent annually going to taxes and insurance, assuming the current 30-year mortgage rate is 4% and your putting 20% down, the math “worked backwards” reveals a maximum home purchase price of \$350,000. This method is better at holding you “on budget” as compared to letting a bank set your maximum purchase price

As a Full-Service mortgage lending organization, we live and breathe in the mortgage space. What?s in it for you? Possibilities and options. We will customize a solution to fit your financing needs so that you can feel comfortable with the home you are buying and most importantly with your monthly mortgage payments. We truly believe that educating our buyers is the clear path to ensure they are well prepared to purchase their dream home. You will have many questions. We have all the answers.

We look forward to having the privilege of helping you with all of your mortgage needs. Call Us or visit us at?www.homewaymortgage.com!