As someone who is looking to purchase their first home, you may be asking: “How much can I afford when buying a house?” There is a lot to consider and it can be overwhelming. I’ve laid homebuying’s major costs out for you below. Keep reading to learn how much home you can afford to buy.
1. First find out what you can afford each month for mortgage payments. 
Add up all your income
Add up all the income that you receive monthly. Make sure they are reoccurring payments , such as your main paycheck and supplemental sources of income like those from a second job or support payments. However, one-time sources of income should not be counted.
Next, Multiply it by 0.25 and 0.36
Your monthly housing payment should account for between 25% to 36% of your monthly income. This should include your escrow for taxes and insurance. To find out what your monthly payment would be at each of those percentages, simply multiply your total monthly income by 0.25. Then, multiply it again, this time by 0.36.
Decide on a monthly payment after your figure out your budget.
If you are moving to a different neighborhood, it would be good to find out how much utility costs are, home owner’s association if needed and other costs that may change if you move. After you understand your budget, find a monthly payment that you feel comfortable paying. Use the two numbers from the step above as a range to get you started. Take the time to put each one into your current monthly budget in place of your current housing costs. See how each amount feels when combined with the rest of your current expenses. Then, tweak the number until you find a monthly payment amount that feels right.
Once you have that number in hand, take a look at a mortgage calculator. Your bank may be able to help you with this. Be sure to use one that allows you to work backward and input your total monthly income in order to determine the maximum amount of money you’ll be able to borrow at that monthly payment.
2. Determine your down payment
You need to have money saved up for a down payment. How much depends on the lender. 20% of the purchase price used to be the standard rule and you should plan on that much. However, some loans will only require you to put down 5%. This will also determine on how high your credit score rates. The higher your score, the more options you will have to consider.
The downpayment that you need will depend on the size of the loan program that you choose. However, until you’re ready to apply for a loan, you can estimate the amount you’ll need by multiplying your budgeted sale price, first by 0.03 and then by 0.05. If you don’t have that much cash on hand right now, make it a goal to start saving toward those amounts.
3. Find out your credit score
Like I stated above, your credit score matters on what kind of loan you can afford. Sometimes folks have enough income for the monthly payments, have a good down payment saved but still have bad credit. This can prevent you from purchasing a house. And even if the bank does decide to grant you a loan, you will be paying more than id you had a good credit score. There is another option if you have the money to buy a house, but do not have a good enough credit score. We offer rent to own homes. Our program allows the buyer to move into the home and we work with the buyer to build up their score so they can qualify for a loan. After that time, they purchase the house. Click here for more information.
3. Don’t forget closing costs
In addition to your down payment, closing costs also need to be paid at the time of settlement. Closing costs account for any fees that were garnered in closing on the home. They usually include things like your inspection fees, title search fees, and loan origination fees. Typically, they’ll amount to 1%-2% of the home’s purchase price, which is then split between the buyer and the seller. Most folks save for their closing costs and count it for the down payment fund.
If you need to look for a private lender to loan you money because you have bad credit or are interested in a rent to own home, Call us at 252-622-4722 or fill out the form to get started.
Happy house hunting!!!
Jay Conner