Thinking about moving?
If you have looked around your apartment or house lately and thought you could use a little more space, you are not alone. Over 15.9 million people have moved during the coronavirus according to USPS (United States Postal Service) data at mymove.com. Buying a new house can be a very exciting time! A home is likely one of the biggest purchases you will make, so figuring out exactly how much you can afford to spend should be the first and may just be the most influential step in the homebuying process. Your home purchasing budget will determine what neighborhoods you search for available houses as well as what must-have features you may need to compromise when making your buying offer. Let us help you! Just follow these steps so you will know just how much house you can afford.
Step 1: Gather your Annual Income
To begin calculating your budget, you will need to figure out the exact amount of household income earned each month. Include all revenue streams ranging from your regular salary, investment profits, to any side gigs that pay a verifiable income. This number should be your gross income, meaning it is the amount of money you make before any taxes are taken out. Make sure to annualize your income, multiply the monthly income amount times twelve months to get the yearly income amount.
Step 2: Gather your Monthly Debts
Next, you will want to calculate your monthly debts. This should only include debts that appear on your credit report such as credit card debt, car payments, student loans, or other term loans. Other expenses like utilities, groceries, and entertainment are not factored into most home purchasing tools.
Step 3: Use a Mortgage Calculator
Once you have gathered all your personal financial information, you can use a mortgage calculator like the one available from Third Coast Bank at tcbssb.com/calculator/mortgage-qualifier which walks you through the process of calculating your home purchasing budget. Many tools like this calculator will ask that you estimate factors such as the term in years of the loan you expect to repay your home loan. Common mortgage terms are 15 years, 20 years, and 30 years. Other factors you may need to estimate include the interest rate, property tax, and insurance premiums. You may know these percentage amounts or you may use the calculator’s default settings.
Understanding Your Home Purchasing Budget Even FurtherHow does your debt-to-income ratio impact affordability?
Most experts agree that your total monthly debts should not exceed more than 36% of your gross income. This is known as your debt-to-income ratio (DTI). Your DTI is used to evaluate your ability to be able to pay your mortgage each month. The lower your DTI, the more money you can borrow and the more options you will have for mortgage loans.
To calculate your DTI, divide your total monthly debt payments by your total monthly income and turn that result into a percentage.How much should you contribute to the purchase of your home as a down payment?
Your down payment plays a big part in affordability. The more money you put down, the more house you can afford to buy. Many mortgage lenders will require you to have a down payment. Some require as little as 3%, while others may require more. Most experts recommend that you put down 20% of the home purchase price as a rule of thumb.
The homebuying process can seem confusing and daunting. Don’t worry, we are here to help! If you are looking to purchase a new home of your own, our skilled mortgage team at TCB would love to assist you. You can also utilize many more mortgage and financial calculators on here our website.
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