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There is no magic formula when determining how much home you can afford. Home affordability is uniquely based on many factors such as- your income, savings, location, preferences, etc. It is very important to have a home-buying strategy in place prior to fully entering the market place.
Here are some key strategies for home affordability:
Are you buying a home? Before you make an offer, find a mortgage lender with MortgageBite’s Free lender comparison platform.
Down payment
Typically, the more money you put down on your home will concurrently affect your monthly payments. Generally the minimum down payment for a home mortgage loan is 3.5% of the sales price. If you purchase a home with less than 20% you will, in most cases, be subject to a monthly fee for PMI (private mortgage insurance) or MIP (monthly insurance premium).
Income
Prior to purchasing a home it is important to have income stability. Calculate your last 2 years worth of income and take the monthly average. When buying a home, understanding your disposable income is very crucial. It is suggested that your monthly mortgage payment be no more than 25% of your monthly income. Having a 2-year history of employment is not only a good pace setting for your future earning ability, it is often required when qualifying for a home loan.
Savings
It is recommended that you have 3 to 6 months worth of payments set aside above and beyond your down payment. Having reserves set aside will not only create some personal reassurance but may also help you in the qualification process.
Location
Seeking the consultation of a real-estate agent, familiar with the area you are looking at, is strongly recommended. A good real-estate agent will often save you time and money as they will be aware of the areas market conditions, which is important in the negotiating process, and, more importantly, the preferences you seek in a new home.
These are a few things to take into account when building a strong home affordability strategy. Take a look at all your options and learn how much home you can afford.
