What is my buying power (How
much
home can I afford)?
One of the first steps in looking for your dream home is to get pre-approved for a home loan. A mortgage advisor can help you determine what you qualify for and help you make an informed decision about your financing.
There are four key factors that will be considered when determining your buying power. These are (1) Down Payment, (2) Credit, (3) Income & Debt-to-Income Ratios, and (4) Closing costs associated with your loan.
Down Payment:
There are many loans today that require less than 20% down payment.
Credit
Your credit score, history of debt repayment, total outstanding debt and total available credit all affect your ability to qualify for a loan. Credit scores range from 300 to 900.
Income & Debt-to-Income Ratios:
Your employment history and income will also be factors in the pre-approval process. Most lenders require that your total monthly debt payments range between 38-50% of your gross monthly income. Your mortgage payment to the lender includes four items… PITI. (P) Principal, (I) Interest, (T) Taxes and (I) Insurance. Remember, when you buy a home all interest is tax deductible, so you may qualify for a major tax advantage that will effectively increase your take-home pay.
Closing Costs:
In addition to the down payment on your dream home, you will be required to pay lender, appraisal and title fees at closing. Typically these can be included in your financing so you don’t need to have additional cash at closing! Total closing costs will range between 3-5% of your loan.
