There is ONE general fact in every homebuying research: houses are one of, if not the most, expensive purchases you’ll make in your lifetime. There aren’t many other opportunities to drop hundreds of thousands of dollars in one sitting… or over 30 years.
This is why setting a house budget is crucial in the homebuying process. Even more modest purchases, like a new car, require examining the bank account, debt and income situation. With a home purchase, this kind of serious financial evaluation is everything if you are to have any hope of success.
A homebuyer should typically be able to afford a home that is 3 to 3.5 times your annual salary (or income). Another general rule is your total monthly expenses (including the new home) should never be above 45% of your gross (pretax) income.
For a first-time home buyer, we typically recommend for this ratio to be 35% or less. You should always consult with a professional mortgage advisor (not your typical order taker at the bank). And please remember that not all banks are created equal.
Many factors go into a lender’s decision to give you a mortgage. Among them are your credit score, debt-to-income ratio, employment history and income. Qualifying income is not just employment salary but other sources such as alimony, royalties, Social Security and trust income. Lenders will tally total income, subtract your debt and use the remainder to determine how much you can afford.
Lenders generally use the 28/36 rule for underwriting. This rule states that a household should spend 28 percent or less of their gross income on total housing expenses, including things like HOA fees, home insurance and property taxes. Likewise, total household debt — which includes everything from your mortgage to credit card bills and student loans, shouldn’t exceed 36 percent.
Therefore, please ask me or your friends and family for mortgage advisors recommendations. A mortgage advisor will let you know your qualification, how much home you can afford, what your monthly payments will be and what you should expect throughout the home buying process.
Hallmark Home Mortgage
Janai Santana Roberts
Languages: English, Spanish and Portuguese