“Can I afford a house?” is the question that everyone always asks before even deciding on a house that they want. Here are 10 questions to ask yourself so that you can know for sure.
1. How expensive of a house do I need?
There is no way to determine if your budget is enough for a house until you determine the level of house that you need. Limiting the information that you take in by the type of house that you want is a great first step. There is simply too much information available online; you need a filter, and the rest of the questions in this article will help you to create this filter.
2. Where do I want to live?
Location is a huge filter that you want to put in place as quickly as possible. The location of a property affects its price immensely, and you will quickly understand the limitations of your budget if you limit your search by your preferred location.
3. How big of a yard does my house need?
The developed part of the home creates most of the value in the real property, but the size of the yard may also create value that will place the house out of your budget. However, you may be the type of person who needs a bit of space. You must first determine the space that you need so that you can fit your budget into the location that will accommodate that.
4. Do I have my down payment ready?
Cash in your hand is worth more than credit in the bank, even if you have the same amount. You can afford more of a house with $150,000 cash than with a $150,000 credit line because sellers will reduce their price to get your cash. You may not be able to gather together enough cash to be an all cash buyer. However, this works with the down payment as well. The more cash you have for the down payment, the lower interest rate you get from the bank. Even a tenth of a percentage point can mean hundreds of dollars per month on the mortgage, which immediately increases the type of property that you can afford.
5. Is the house I want a fixer upper?
If you are looking at a house that is not a turnkey, then you should be able to negotiate the price down based on a contingency list. This means that you can afford more house if you are willing to take on this added responsibility. If you have DIY ability, then you can get a bigger house and have a great project for your weekends as well.
6. Do I have enough money for the other expenses of homeownership?
Keep in mind that the mortgage payment is only one of the many expenses that you will take on as soon as you own a home:Â You will also need money for property taxes, many different kinds of insurance, maintenance on the home, furniture, and any upkeep that the home needs in order to be livable.
7. Is my income consistent?
Even if you choose a 10 year mortgage plan, the concept of homeownership is a long one, to be sure. You are investing a significant portion of your life into the property even if you are trying to flip the house. In order to make sure that your initial investment does not go down the drain, you must be able to ensure a consistent income to keep up with mortgage payments. Otherwise, you lose any money that you place on the house up front.
8. How much debt do I have?
Your debt to income ratio is a metric that any lender will look at before giving you a home loan. However, you should look at it yourself so that you can improve your own financial health before you walk into a bank. In order to get the best interest rate, your debt to income ratio should be at about 30 percent or below. Most lenders expect that your mortgage payment will take up about a quarter of your income, and this does not leave much for you to live on if you have more debt than 30 percent.
9. What does my credit look like?
Your credit report will determine how much house you can afford as well. If you have a credit score of over 700, your opportunities are much greater with lenders. You may be able to get the most advantageous interest rate along with many other advantages. By the same token, you may want to reassess your homeownership plans if your credit scores below 620. If this is the case, many lenders will not even let you through the front door. The bottom line: Fixing your credit improves your budget.
10. Do I need special considerations?
Affordability becomes almost secondary if you have special considerations such as a family pet or an indigent relative that you are taking care of. There is a certain fixed cost to these responsibilities, and you must factor this in when you are talking about the kind of house that you can afford. Take notes on how much you spend on your special considerations and factor thb into the calculations that you consider when you talk about home affordability.
2 Point Highlight
If you have DIY ability, then you can get a bigger house and have a great project for your weekends as well.
Keep in mind that the mortgage payment is only one of the many expenses that you will take on as soon as you own a home:Â You will also need money for property taxes, many different kinds of insurance, maintenance on the home, furniture, and any upkeep that the home needs in order to be livable.
