There’s nothing quite like shopping for your first home as a new homebuyer. Better yet, you may have found a home that seems to best fit you and your family’s needs. But now comes the tricky part – can you afford it?
One thing is for sure: the numbers can get pretty intimidating will all those zeroes at the end of the price tag. However, there are a variety of tools, such as those offered by Peoples Bank, that can help you as a first time homebuyer decide how much you can afford, as well as helping you understand the factors that go into determining the price of your home purchase.
What are the Numbers?
You can use an affordability calculator by plugging in some numbers that can help you get a quick answer. Those numbers include any debt that you owe: car and student loan payments, monthly credit card payments, child support, and alimony. You should also add in what you’ve saved for a down payment.
Many experts suggest that your housing-related expenses should amount to 25% to 28% of your gross monthly income (your income before taxes). Housing-related expenses include your mortgage payment, property taxes, home insurance, maintenance, and upkeep. The feeling is that spending more than that on household expenses will cut into other necessary expenses such as child care, transportation, groceries, medical costs, etc.
Your monthly mortgage payment is a primary driver of how much house you can afford. In turn, that payment is affected by the interest rate you’re charged on your mortgage loan. The interest rate is affected by a variety of factors, including the local market and economic environment, as well as your credit score. A higher credit score can lower your interest rate. You’ll also want to check what different interest rates look like on both 15- and 30-year loans.
Lenders are very interested in your debt-to-income ratio, whether you’re a first-time homebuyer or not. There are a variety of online tools to do this; what you’re looking for is the percentage of your income that goes to paying all existing debt payments.
You should take into consideration the kind of market you’re buying into. Is it a buyer’s or seller’s market? If it’s a seller’s market, then prepare yourself to make several offers until you hit on a price that works for both you and the seller. Be careful to not let disappointments entice you into a home you don’t really like, or that doesn’t fit your needs.
So: how much should you spend on your home? If you’re a first-time home buyer, let the team at the Peoples Bank Home Loan Center help you through the home buying process. Renessa, Lacie and Cody have years of experience in the West Texas housing market, helping people in the community buy their first home.