How Much House Can You Afford? Budgeting for Your First Home
ByOlivier
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Important Elements That Affect Affordability
Lenders will take into account several factors when determining your first house budget:
- Monthly Gross Income: Your pre-tax and pre-deduction income is the starting point for figuring out how much you can afford to pay on your mortgage.
- The Credit Score: A higher credit score entitles you to better interest rates, which can drastically lower both the overall cost of your loan and your monthly mortgage payment.
- A Down Payment: Although the conventional down payment is 20%, many lenders allow down payments as little as 3% to 5% for their loans.
- The Ratio of Debt to Income (DTI): Your DTI ratio indicates how much of your income is used for debt. A lower DTI ratio means you can borrow more money and have a better chance of getting your mortgage approved.
- Type and Term of Loan: Loan programs like FHA, VA, and USDA offer flexibility with regard to down payment and credit requirements.
