It’s Time To Talk About How Much You Can Afford
May 28, 2020
Forget the “Zestimate.” Ditch the guesstimate. It’s time to figure out how much you can afford. Brooklyn is one of the most expensive housing markets in the world but every day, people manage to buy here. Maybe that’s in the cards for you right now or maybe it’ll be somewhere down the line (one tool we find helpful when deciding on timing is this handy Rent Vs. Buy Calculator). But the only way you’ll know is to educate yourself about how much you can afford to spend.
The Basics
After some back-of-the-napkin math and a little bit of internet research, your first stop really should be to a mortgage loan officer. They’re the people who let you know what’s realistic and offer you loan products (yep, they’re products and it’s your choice whether to buy) within your means. It’s also a good chance to get pre-approved so that when you do see your dream home, you’re that much closer to snapping it up. Here’s how to choose one.
Your price range is determined by your income, debt, credit history, and the cash you have for a down payment and closing costs, and your debt. How much you earn compared to how much you owe will likely determine how much the bank allows you to borrow.
The Math
The financial rule of thumb is: your total monthly debt service, which will include your monthly mortgage, shouldn’t be more than about 36 percent of your gross monthly income. Most experts say that your monthly housing expense, including taxes and insurance, should not exceed about 28 percent of your gross monthly income.
Every situation is different and every lender follows different rules, but a number of choices within your control can affect your monthly payment. For example, you might choose an adjustable rate loan, which has a lower initial payment than a fixed rate program. Similarly, a larger down payment may lower your monthly payment. For a full overview of mortgage products, read this.
Some other things to factor in?
We know. It’s a lot. Give us a call and we’re happy to whip out our calculator and walk you through it!