Before you go house shopping, you should know what you can afford. Spending more on housing than your budget can comfortably handle can create challenges in your entire financial life. It could force you to do without other things you need or want, or even lose the house if you can’t keep up the payments. You can avoid these problems, however, by doing your due diligence before starting your home search and using the convenient house cost calculator on this page.
The general rule says home buyers can typically afford a mortgage that is two to two-and-a-half times their gross income. This guideline, however, may or may not apply accurately to your situation; it is too general to solely rely on when you’re considering a purchase as important as your residence.
Affordability Factors
Here are the primary factors that determine how much house you can really afford:
- Income. Your lender may only look at your gross income, but you need to also consider how stable your job is and how easy or difficult it might be to replace it, if necessary, with another position that pays the same or better wages.
- Debt. Lenders will look at your debt-to-income ratio, or the percentage of your gross income needed to cover your debts. These can include credit card payments, child support, auto and student loans, etc. Lenders prefer to see this ratio around 36 percent or less.
- Credit score. Your credit score is an important indicator of your risk as a borrower. The higher your score, the better the interest rate you can expect to be offered.
- PITI. (Principal, interest, taxes and insurance) When considering whether or not you can afford a certain house, be aware that your monthly payment will cover more than the principal and interest on your mortgage. It will also include the cost of taxes plus homeowners insurance and mortgage insurance (if applicable).
- Down payment. The higher your down payment, the lower your future monthly expenses. Clearly this affects how much house you can afford. And if you put down less than 20 percent, you’ll also need to factor private mortgage insurance into your monthly payments if you are applying for a conventional (non federally insured) loan.
- Lifestyle. Only you know how you like to live your life and the associated preferred lifestyle costs. If your mortgage payments stretch your resources, will you be unhappy giving up a new car, family vacations, or browsing through online stores?
- Total costs of home ownership. Don’t forget about other potential costs of homeownership, including HOA fees, repairs, remodeling, new furniture and/or appliances, utilities, landscaping, maintenance, etc.
Lender Shopping
As important as it is to shop around for a house, it’s also important to shop thoroughly for a mortgage lender. Choosing well can make the process smoother and easier plus potentially save you money. This means a little more research for you.
First get an overview of the mortgage landscape. Make sure you know how Long Island interest rates are trending, for example, and the average credit score and down payment lenders are looking for in the current lending climate.
Then compare rates from several lenders and don’t forget to ask about other fees, such as initiation fees, points, closing costs, etc.
Also look beyond cost comparisons to consider customer service. This can make a tremendous difference to the mortgage and home buying experience. If challenges occur along the way, a lender’s service and approach can even mean the difference between getting the home of your dreams or losing out.
Down Payments and Home Equity
When you use our convenient calculator, you will quickly see how much difference a down payment makes. Saving a little more to put down in advance can reduce your mortgage payments for the next 10-30 years!
A larger down payment also gives you a head start on building equity in your home. Your down payment doesn’t disappear into someone else’s pocket the way rent does. It remains your asset, which will turn into cash when you sell your home. Or you can borrow against it, at any time, through a home equity line of credit and get money for any purpose.
Bethpage Federal Credit Union Mortgages
Bethpage offers a variety of loan types suitable for first mortgages and refinancing, including fixed- and adjustable-rate mortgages, jumbo mortgages, federally insured loans such as FHA and VA mortgages, our 10-Year Fixed Debt Buster, and investment property mortgages. Check out our competitive Bethpage mortgage rates.
When you’re ready to purchase a new home or refinance your current mortgage, we’re here to help.
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