Have you been considering buying a home but not sure if you can afford it? Have you been renting for a while but haven’t been sure if it’s the right time financially for you to buy? Well, you’re in luck. I’m here to break it down.

Some things to consider when debating on if you should buy a house or continue leasing include your credit history, your loans, your monthly income, and your savings.

Credit History

When you start the process of talking to a lender about getting a home loan, your lender will assess your credit history. If you do this with a few other lenders to see who offers the best interest rate on a loan all within a short time period, this alone will not noticeably affect your credit. But if you are not sure where you stand with your credit history, this is an essential step in determining your financial standing for buying a home.

The better credit score you have, the better interest rate you will likely be offered. The lower your interest rate, the lower your monthly payment would likely be on a loan. Interest rates are constantly changing, so you want to have your credit in the best possible position to lower the interest rate portion of your monthly payments.

If you do not have a great credit history, please don’t feel embarrassed. You may or may not qualify for a home loan, but a good lender will walk you through some steps you can take to get your credit in a place where you can acquire a home loan in the future.

Loans

If you have excessive loans, this will factor into how much house you can afford. If you are paying off certain debts on a monthly basis, you will need to factor that into your monthly income before you can determine how much you could pay toward a mortgage.

Monthly Income

This may seem straightforward, but you can’t have a mortgage payment greater than your monthly income. Therefore, when determining how much house you can afford, you need to know how much money you earn monthly. From there, you can subtract monthly expenses and debts. Different loan types will require different debt-to-income ratios on the loan. For example, debt-to-income means if you have $10,000 of income per month and $3,000 worth of monthly debt, the debt-to-income ratio is 30%. A lender will talk you through which exact debt-to-income is necessary for their loan options.

Savings

Many loans (but not all) require some sort of down payment. But down payment amounts can range anywhere from 0% of the loan amount to 20% or more. Again, your lender will walk you through the best loan option for you based on all of the above circumstances in addition to how much you have saved for a down payment. So if you do not have a large savings amount, don’t let that detract you from talking to a lender. You may be surprised at the down payment assistance programs available.

The Bottom Line

I know that there is not a calculator on this blog that tells you exactly how much house you can afford. There are calculators out there, but nothing is going to give as accurate of a picture of how much you can afford as a conversation with a lender will reveal. Lenders are here to be assets for you in starting the process of looking into buying a home. A good lender is not going to lead you down a path of getting a loan for a house that is too expensive for you. They will help you financially plan for a loan that will fit your specific needs.

If you’re not sure which lenders you should reach out to, honestly, start with your own bank. Many banks have a mortgage division that helps with home loans. Since your bank already has your information, that may be a great way to start. If you want to shop around, feel free to reach out by going to my contact page. I would be happy to get you connected with a real estate agent near you, who can provide you some great recommendations. 

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