How much house can I afford? That is a question many home-buyers ask themselves when they are in the process of buying a new home. Purchasing a home is one of the most significant investments you will make in your lifetime. You must take the time to define a budget and carefully evaluate your financial situation before you start looking for your new home.
1. How Much Down Payment Do I Need To Buy a House?
While many first-time home-buyers would like to think they can buy a home with no money down, this is rarely the case. To avoid paying for mortgage insurance, you will need to save up at least 20% of the house's purchase price.
2. What are the Various Types of Mortgage Options?
There are several types of mortgages, including 30-year fixed-rate loans, 15-year fixed-rate loans, and adjustable-rate mortgages, where the interest rate changes after every 3 to 5 years. Talk to your lender about all your options.
3. What Numbers and Ratios are Important to Mortgage Lenders?
Now that you have decided on your down payment and mortgage, the next step in calculating how much house you can afford is to figure out your debt-to-income ratio (DTI).
4. What Are Closing Costs and How Much Money Do I Need for Them?
In addition to your down payment, you will also need to pay closing costs. Closing costs are taxes and fees charged by the lender and other parties involved in the home purchase transaction, such as title companies, lawyers, and escrow agents. You may also have to pay appraisal fees and additional fees required by state law.