Does this sound like you? You’re looking to buy a house, but you’re not sure how much you can afford in mortgage payments. You’re not alone. Many people aren’t sure how much mortgage they can afford. That’s why it’s important to use a mortgage calculator to determine how much you can afford to take on in debt. Here are the factors involved when deciding how much you can spend on your new home.
How Much House Can You Afford?
When considering how much house you can afford, the lending company takes the following into consideration:
- Your Credit Score and Credit History
- Your Income
- Your Debts and Expenses
- Your Down Payment
Should You Go with an FHA or Conventional Loan?
In most circumstances, if you have 20 percent or more to contribute as a down payment, you should choose a conventional loan. If you don’t have 20 percent of the purchase price to put down on your new home, you should consider an FHA loan, which requires at least a 3.5 percent down payment.
Your Debt to Income Ratio
Before you look for a loan, you should calculate your debt to income ratio. This ratio is your total debts for the month divided by your pretax income. Your debt number should include your mortgage payment, including the property tax and property insurance. The total ratio should be less than 36 percent, even though you may be qualified for up to 43 percent.
Should You Buy a More Expensive Home if You Qualify?
Just because you can buy a more expensive home doesn’t mean you should. You should consider saving for life events such as having children, medical expenses, and job changes.
Contact us at Mortgage Investors Group for all your home loans in Tennessee.