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  • Ron Goldan | 908.253.9700
 

How much can you afford for a home

Investing in a new home is one of the largest financial decisions you will ever make. Finding the right home price for your income and debt level is important to understand the best strategy to take with lenders.

 

According to most banks, your total debt payments should not be more than 36 percent of your gross income. This calculation will help the bank arrive at an affordable home price. Calculate your monthly debts and income to determine what you can afford. If a borrower has a high debt level, they will have a challenging time comfortably repaying the loan.

 

Some additional elements to keep in mind include focusing on the property tax amount and homeowners insurance. If you are investing in an area where you have homeowners association fees, it is important to find out what the cost of these monthly fees are as they will calculate into the monthly amount you will end up paying.

 

It is recommended for buyers to invest 20 percent of the total mortgage as a down payment amount. If you do not have 20 percent to invest as a down payment, you will need to factor in the cost of private mortgage insurance. The mortgage you can afford will be based on a number of different elements from your monthly income to your down payment and your monthly financial commitments.

 

Working with the right financial advisers can help you qualify for a mortgage that meets your lifestyle and financial needs. It is recommended to reduce your debt amount before you start the qualification process. A lower debt-to-income ratio will make it easier for a lender to approve you for a loan. The remaining money after the loan needs to be enough to pay for your loan and provide you with money for savings and other unexpected financial needs.

 

One element that can make the loan payment amount differ is the interest rate. If you have a lower credit rating, it can cause problems for many people to afford the monthly payment amount.  Keeping the interest rate as low as possible is one of the most important elements to consider when you are evaluating your lending options.