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How Much Home Can You Afford?

Sep 07, 2016

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Purchasing a place to call home is both exciting and stressful. Making sure you know how much home you can afford before you jump into house hunting is essential. As a mortgage lender, we want to make sure you won’t be overspending on a home.

Here are some of the factors we consider:

DEBT-TO-INCOME RATIOS

Your debt-to-income ratio is the percentage of monthly income that is spent on debt payments. This includes student loans, auto loans, mortgages, minimum credit card payments and child support. Your front-end ratio, which is your monthly housing payment, should not take up more than 28% of your income before taxes. Your back-end ratio is all debt commitments including your housing payment. Ideally, this should not be higher than 36%. 

US Capital Mortgage Partners is determined to get as many people as possible into their dream home, so even though a back-end ratio of 36% or lower is recommended, we allow debt-to-income ratios up to 43%.

CREDIT HISTORY

Payment history, new credit, amounts owed, credit mix and length of credit history are all things that factor into your credit score. 

When calculating how much home you can afford, your credit history is one of the biggest factors we look at. If your credit score is 620 or above, you should not have any issues getting preapproved for a mortgage. If your credit score isn’t high enough to get a loan right away, don’t worry! We will be there every step of the way to make
sure you get your credit score to where it should be.

If you have good credit history, you are likely to get a lower interest rate. The best rates tend to go to borrowers with credit scores of 740 or higher.

DOWN PAYMENT

Contrary to popular belief, there is no need to worry if you can’t do a 20% down payment. There are many loan types that require little to no down payment, which makes buying a home realistic for more people!

Click here to see which type of loan best fits your needs!

LIFESTYLE FACTORS

Are there factors in your life that we may not know about? Do your children go to private school, or do you dine out often? These are factors to consider when deciding how much you can and want to spend on a home.

BE CAREFUL

It is wise to give yourself financial breathing room. Just because you qualify for a certain amount, does not mean you should spend that much. Think about your priorities. Would you rather have a large and updated home or down-size a bit and have more money for spending? Either way is great, but make sure you know what you’re getting yourself into before you purchase.



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