Thursday, March 31, 2022 / by Shane Kilby
These 3 Things Affect Your Home Affordability
Three important factors that affect how much home you can afford.
How much home can you truly afford? Many first-time buyers ask themselves this question, so today I want to dive into the topic. Home affordability is determined by interest rates, purchase price, and debt-to-income ratio.
Your debt-to-income ratio takes into consideration the debt you currently have and the proposed monthly payment of the home you’d like to purchase. By comparing those two factors to your income, we can see how much you can afford.
The interest rate determines what those monthly payments look like. Today, the interest rates are historically low, but we expect them to increase. If rates increase, it will affect your debt-to-income ratio. If the rates rose from 3% to 3.25%, it could throw your debt-to-income ratio out of balance.
"The amount of home you can afford is flexible."
So how does the purchase price affect all of this? Let’s say you’re looking at a home in the $200,000 price range, but you find a house down the street for $250,000 that you are really in love with. The difference between the two will only mean an extra $50 to $75 a month. Don’t get so wrapped up with the purchase price. The interest rate will make a bigger impact on your monthly payment.
The amount of home you can afford is flexible. Contact your expert lending partner and discuss what happens if rates change or if you purchase a slightly more expensive home. You want to work with that lender early in the process so that you aren’t disappointed with how high your monthly payment is. You might also find that you can buy a much bigger home and have a much lower monthly payment than you would expect.
Talking to your lender early can also help you make an offer that the seller will take seriously. If you wait until after you find a home to get approved, many sellers won’t even consider your offer.
If you have any questions about your buying power or real estate in general, feel free to call or email us. We’d be happy to help you however we can.