Factors That Determine How Much Home You Can Afford
Posted on: 27 May 2017
If you are on the market for a home, you should know that these four are some of the factors that will determine the size of the property you can afford:
Your Income
This, simply, is one of the fundamental questions that determine the maximum price you should fork out for a house. Even if you have a sizable down payment (maybe you have been a frugal saver for long) or you have somehow convinced the bank to advance you a big loan, you shouldn't buy a house that your earnings can't afford. Remember, aside from the mortgage payments, there will also be related expenditures such as property taxes and upkeep.
How Much Debt You Already Have
It's not just the lender who should be interested in this question; as a buyer, you should also answer it honestly too. The more debt you have, the more it will be difficult to buy a big house. Think carefully about the size of the mortgage (and hence the size of the house) you are targeting if you are already struggling with student loans, car payments, different insurance policies, and other loans.
Lender Considerations
The amount of money you can convince the mortgage lender to give you will determine the size of the house you can buy. The lender will evaluate your financial situation (considering multiple factors) to determine the size of the loan they can advance you. Although you may have similar concerns to the lender, they cannot compromise on any issue because doing so would jeopardize their investment. For example, a typical lender will find it difficult to loan you a large amount even if you are willing to shoulder it despite your existing multiple debts. Lender considerations include things like income-to-debt ratio, down payment, and credit history, among other things.
Your Lifestyle
Lastly, you should also consider your lifestyle to determine how much you can afford to spend when looking at homes for sale. For example, if you have young kids who are about to start school, you should ask yourself whether you plan on sending them to private or public school. If you frequent expensive restaurants, fancy clothes and only drive the latest model of your favorite cars, then you should only go for an expensive house if you have the money to support that lifestyle and pay the mortgage.
Whatever size of a home you are looking for, it's best to sit down with an experienced property agent to help you look for it. The agent can also explain to you all the costs associated with buying a property so that you can make an informed decision.
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