Can I Afford to Buy a House?
By: Alyson Moss
Before you go out house hunting, let’s take a step back and put some things into a more simple perspective.
You should consider the following things when asking yourself, “Can I afford to buy a house?”
Make sure the time is right
Determining whether you can afford to purchase a home takes knowing where you (and your significant other) stand financially. Start by taking a complete look at all of your finances. Allow yourself to review your budget and your current debts. If you have a steady income, savings, and manageable debts, kudos to you! You’re on the right track.
If you aren’t able to check all the boxes, give yourself some time to make payments to all creditors and try to keep your debts are low as possible. You want to be able to enjoy your home and all the things that come with owning a home, while also living comfortably without having to worry about overwhelming debt.
Understand the anatomy of your credit score
Your credit score plays a big role in purchasing a home. Not only does it determine the kind of loan you qualify for, but also the interest rate you will receive on your home loan. The higher your credit score, the lower the interest your interest rate will be. As a benchmark, most home buying programs or lenders require a minimum credit score of 640.
View your credit report from all three of the major credit reporting agencies (Experian, TransUnion, and Equifax). Review them and address things that may require your attention. Your credit history should be HEALTHY!
Continue to revive your savings account.
Typically when purchasing a home, it will require a large down payment. However, you’ll want to make sure that your down payment doesn’t entirely drain your savings account. Having an emergency savings at all times is extremely important, especially as a homeowner. If you are struggling with the thought of coming up with a down payment, now is probably not the right time to purchase a home.
Think about it. What your budget will be like if you add a mortgage along with your other bills? Don’t forget about the insurance and property taxes that may come along with it.
Evaluate your debt-to-income chart
Lenders use what is called your debt-to-income, or DTI, to determine how much you can get approved for. DTI is the percentage of your income that goes toward paying your monthly debts.
Learn how to calculate your DTI to see where you stand. To solve this, divide your monthly expenses that are reporting to your credit by your monthly income before taxes. If your current DTI is 45% or higher without a mortgage, you should work to reduce debts before purchasing a home.
Still have questions about a mortgage? Get in touch with our Mortgage Lender, we’d be happy to help!