Can You Afford Your Mortgage?
If you have thought about buying a house then you already know how expensive it can be. You also know how much work it can be to get ready to buy. There are several signs that are you ready to buy a home and these include having a low debt-to-income ratio and being able to make a 20% down payment.
When you use a mortgage calculator, you can see how much home you can afford but there are also certain signs that you are able to afford the home you want.
You Have Looked Past the Purchase Price
It helps to know how much you will spend on utilities or homeowners insurance. These expenses are on top of what you pay for your mortgage, so you need to factor them into your budget.
Consider homeowners association fees as well. Not every neighborhood has them, but some do and those costs also add up.
You Aren’t Dipping into Your Emergency Fund for a Down Payment
If you are considering taking some money out of your emergency fund for your down payment then you aren’t ready to buy and likely can’t afford the mortgage.
Keeping an emergency fund helps you avoid making any rash money decisions and helps ease stress in the event of an injury or job loss.
You Can Make a 20% Down Payment
Putting the full 20% toward a down payment helps you avoid mortgage insurance and keeps your costs down. Use a mortgage calculator to see how much lower your monthly payments will be when you have the full 20% down.
You Aren’t Spending More than 30% of Your Income
In order to make sure you can afford your mortgage, the total amount of the mortgage payment, along with other house fees, should be less than 30% of your monthly pre-tax income.
Keeping expenses under this threshold will allow you to contribute money to your retirement account.
You Still Have Cash after the Down Payment
Your down payment isn’t going to be the only money you are spending on your new home. You want to have money left over for buying furniture and other costs that come up.
Having some extra cash on hand for expenses can help you avoid the costs of potential financing and save in the long run. For example, putting appliances on a credit card can be costly.
You Aren’t Drowning in Student Loan Debt
You don’t need to necessarily pay off all your student loans before you take on a mortgage but you should consider avoiding having two large debts.
Try to make sure your other debts are under control before you take on more, in order to make sure that you can afford your mortgage and still live a comfortable lifestyle.
You Don’t Have a High Debt-to-Income Ratio
If this is high for you then it can be harder to get preapproved for a mortgage. Usually, 35% or lower is best for homeowners.
While it may be possible to get approved, you could be looking at a higher interest rate and you will be paying more for your mortgage. Fix this by either paying off some debt or working on increasing your income.