Tips For Buying An Affordable Home
Suppose you qualify for a large home loan. Does that mean you need to borrow the entire amount your lender is willing to loan you? Of course not.
Assessing how much mortgage you can handle requires a bit of a look into your current and predicted future financial situation. Before you take on the maximum loan you can get and start looking at more expensive houses, consider these tips.
How To Calculate Mortgage Payments
Zillow’s mortgage calculator gives you the opportunity to customize your mortgage details while making assumptions for fields you may not know quite yet. These autofill elements make the home loan calculator easy to use and can be updated at any point.
Remember, your monthly house payment includes more than just repaying the amount you borrowed to purchase the home. The “principal” is the amount you borrowed and have to pay back , and the interest is the amount the lender charges for lending you the money.
For most borrowers, the total monthly payment sent to your mortgage lender includes other costs, such as homeowner’s insurance and taxes. If you have anescrow account, you pay a set amount toward these additional expenses as part of your monthly mortgage payment, which also includes your principal and interest. Your mortgage lender typically holds the money in the escrow account until those insurance and tax bills are due, and then pays them on your behalf. If your loan requires other types of insurance like private mortgage insurance or homeowner’s association dues , these premiums may also be included in your total mortgage payment.
What Property Tax Amount Should I Input Into This Mortgage Pre
The property tax owing for any property will be based on the municipality where you live. If you are unsure of the amount to include, then leave it at $1,000 for your first calculation.
Once you see the purchase price, that you could potentially qualify for, then change the property tax to 1% of that amount.
Every city is different, if a lender doesn’t know what the property taxes will be, then they will assume 1% of the purchase price. That’s a fair number to use for these purposes.
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What Should I Input For The Total Monthly Loan & Lease Pmts Of The Calculator
For this section you should include the monthly payments that you make for any personal loans or vehicle loans or leases.
If you have a car lease that is $325 per month, then input “325”.
If you have a personal loan with a payment of $275/month and a car loan with a payment of 325/month, then add these two numbers together. $325 plus $275 equals $600, then input 600.
Sometimes you have loan or lease payments that are paid every 2 weeks, called bi-weekly. If you debt payment is bi-weekly, then you have to convert that payment to monthly.
To convert a bi-weekly payment to monthly you must multiply the bi-weekly payment by 26 and divide by 12.
Here is an example, you have a bi-weekly payment of $230. To convert this payment to monthly multiply by 26 and divide by 12. Therefore, $230 multiplied by 26 and divided by 12 equals $498.33. You could type in 498 or round up to 500.
Notice that a bi-weekly payment of $230 is not $460 per month. You can type in 460 if you wish, then look at the result. Then type in 500 and look at the result. Is it different?
Sometimes the payments will affect how much mortgage you can qualify for and sometimes they don’t. This difference really depends on your income and the total amount of the payments that you must make each month.
How Much Should I Spend On A House
Anaffordability calculatoris a great first step to determine how much house you can afford, but ultimately you have the final say in what you’re comfortable spending on your next home. When deciding how much to spend on a house, take into consideration your monthly spending habits and personal savings goals. You want to have some cash reserved in your savings account after purchasing a home. Typically, a cash reserve should include three month’s worth of house payments and enough money to cover other monthly debts. Here are some questions you can ask yourself to start planning out your housing budget:
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Estimate How Much House You Can Afford
To help you get started, you can use our calculator on top to estimate the home price, closing costs, and monthly mortgage payments you can afford based on your annual income. For our example, lets suppose you have an annual income of $68,000. Youre looking to get a 30-year fixed-rate loan at 3.25% APR. For your down payment and closing costs, youve saved $55,000. See the results below.
- Annual income: $68,000
|Total Monthly Mortgage Payment||$1,587|
Based on the table, if you have an annual income of $68,000, you can purchase a house worth $305,193. You may qualify for a loan amount of $252,720, and your total monthly mortgage payment will be $1,587. Since your cash on hand is $55,000, thats less than 20% of the homes price. This means you have to pay for private mortgage insurance . Take note: This is just a rough estimate. The actual loan amount you may qualify for may be lower or higher, depending on your lenders evaluation.
The following table breaks down your total monthly mortgage payments:
|Monthly Payment Breakdown|
|Total Monthly Mortgage Payment||$1,587|
According to the table, your principal and interest payment is $1,099.85. When we add property taxes and home insurance, your total monthly mortgage payment will be $1,481.34. But because you must pay PMI, it adds $105.30 to your monthly payment, which results in a total of $1,587 every month.
Ready To Start Your Home Buying Journey
Whether you’re just thinking about buying or you’re ready to buy, you can get started online!
The Mortgage Affordability Calculator estimates a range of home prices you may be able to afford based on the accuracy and completeness of the data and information you enter. The results are intended for illustrative and general purposes only, and do not constitute, nor should they be relied upon as financial or other advice. To discuss your full range of home-buying options, please contact your branch or call
The results are calculated and generated based on the accuracy and completeness of the data and information you have entered and provide an estimate only. The results are intended for illustrative and general information purposes only, and do not constitute, nor should they be relied upon as, financial or other advice. The interest rate shown is calculated either semi-annually not in advance for fixed interest rate mortgages or monthly not in advance for variable interest rate mortgages. These rates are only available for already built, owner-occupied properties with amortization periods of 25 years or less. Any application is subject to credit approval. For more information, please contact us to discuss your home-financing options.
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Calculate Your Loan Prequalification And More
When figuring out how to qualify for a home loan, it helps to determine your ability to qualify. Thats why we put together this loan prequalification calculator. So, whether youre trying to qualify for a home loan or an auto loan, make sure you even qualify. Just bear in mind that this loan prequalification calculator is in no way a guarantee. It is, however, a good starting point in figuring out if you can get pre-approval for a home loan.
Overcoming Common Challenges To Qualify For A Mortgage
The three most common barriers to homeownership are:
If you get rejected for a mortgage based on any of these three factors, it may feel like all is lost. However, it may be possible to overcome these challenges, often in less time than you might think.
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What Mortgage Term Should I Input In The Mortgage Pre
The term is there to allow you to see how much your mortgage balance would be after 1 to 5 years. Most people choose a 5 year term, but you can choose any term.
If you are interest in knowing how much principle you have paid off after 1 year, or 2 years, etc., then change the term to 1 or 2 years, etc. and see the result at the bottom right of the calculator results.
A principle and interest payment and total housing costs is important to know so that you can do some budgeting.
It’s also nice to know how quickly your mortgage is being paid down based on these payments.
How Much House Can I Afford
While you may have heard of using the 28/36 rule to calculate affordability, the correctDTI ratiothat lenders will use to assess how much house you can afford is 36/43. This ratio says that your monthly mortgage costs should be no more than 36% of your gross monthly income, and your total monthly debt should be no more than 43% of your pre-tax income.
For example, if you make $3,000 a month , you can afford a mortgage with a monthly payment no higher than $1,080 . Your total household expense should not exceed $1,290 a month .
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What Are The Benefits Of Getting Pre
There are a few benefits of getting pre-approved. Most importantly, you can lock in your rate, which makes it easy for you to house hunt with confidence.
With QuestMortgage, the application is completely online, and only takes a few minutes to complete. Plus, the application is a soft credit check, and it wont impact your credit score. So, if you have an idea of what you could qualify for, a pre-approval is a beneficial next step when youre close to buying a home.
How Much House Can I Afford With A Va Loan
Veterans and active military may qualify for a VA loan, if certain criteria is met. While VA loans require a single upfront funding fee as part of the closing costs, the loan program offers attractive and flexibleloan benefits, such as noprivate mortgage insurance premiums and no down payment requirements. VA loan benefits are what make house affordability possible for those who might otherwise not be able to afford a mortgage.
With VA loans, your monthly mortgage payment and recurring monthly debt combined should not exceed 41%. So if you make $3,000 a month , you can afford a house with monthly payments around $1,230 .
Use ourVA home loan calculatorto estimate how expensive of a house you can afford.
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Understand The Different Types Of Mortgages
Conventional loan: A conventional loan will allow you to get a home with as little as 3% down. Another big advantage of this option is if you’re moving to put down a little bit more, you can get a vacation home or investment property.
VA loan: A VA loan is a mortgage option available to United States veterans, service members and their non-remarried spouses. Theyre offered by traditional lenders and backed by the U.S. Department of Veteran Affairs. VA loans are no-down-payment loans that offer more lenient credit and income requirements. Rocket Mortgage® requires a 620 median credit score.
FHA loan: An FHA loan is a loan that is backed by the Federal Housing Administration. If you have a lower credit score and less money for a down payment, you might qualify for an FHA loan. To qualify through Rocket Mortgage®, youll need a 580 median credit score and a 3.5% down payment.
Jumbo loan: Jumbo Smart loans allow you to get a loan amounts higher than $548,250, the current conforming loan limit. You’ll need a higher down payment, at least 10.01% for loans up to $2 million and a credit score of at least 680.
USDA Loan: A USDA loan is backed by the U.S. Department of Agriculture. You could be eligible for a USDA loan if you want property in a qualifying rural or suburban area and if youre a low-to-moderate income earner. You can get a USDA loan with no down payment.
What To Provide To Your Lender Or Mortgage Broker
Before preapproving you, a lender or mortgage broker will look at:
- your assets
- your income
Youll need to provide the following:
- proof you can pay for the down payment and closing costs
- information about your other assets, such as a car, cottage or boat
- information about your debts or financial obligations
For proof of employment, you may have to provide:
- a proof of your current salary or hourly pay rate (for example, a recent pay stub
- your position and length of time with the employer
- notices of assessment from the Canada Revenue Agency for the past 2 years, if youre self-employed
Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.
Your debts or financial obligations may include your monthly payments for:
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How Much Can I Afford
How much you can afford to spend on a home in Canada is most determined by how much you can borrow from a mortgage provider. That is, unless you have enough cash to purchase a property outright, which is unlikely. Use the mortgage affordability calculator above to figure out how much you can afford to borrow, based on your current situation.
How Much Do I Need For A Down Payment
It looks like you may be able to afford a home worth about 386,405 for a payment of about1,300per month/mo.
$376,405 loan amount
Information and interactive calculators are made available as self-help tools for your independent use and are intended for educational purposes only. Any results are estimates and we do not guarantee their applicability or accuracy to your specific circumstances
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Whats The Difference Between A Mortgage Pre
A pre-approval is a helpful tool when shopping for a home. It lets you know what you could qualify for and to lock in a great rate based on your credibility as a borrower. To receive a mortgage, lenders will want to know about the property youre buying, and that information will be what helps you go from pre-approved to fully approved.
And once youre ready, youll need to also get a full mortgage approval to move forward with your home purchase. The lender will need to verify a few more things, such as:
The homes condition
Some lenders require the home to be in a certain condition before the mortgage closes, which is standard for some types of mortgages.
The appraisal value
Your lender will order an appraisal of the home to ensure youre not paying more than the home is worth. If the appraisal is lower than the purchase price, it could potentially cause problems with your loan.
Your lender will need to work with a title company to confirm who owns the property and ensure there arent any claims or liens against it.
A mortgage approval will also require additional information and verification, and also depends on your circumstances at that time. The lender will need to verify your income, liabilities, and expenses, as well as run a full credit check with a credit bureau.
What Amortization Should I Input Into The Calculator
The calculator allows you to choose an amortization from 5 years to 25 years. Lenders will qualify you for a mortgage based on 25 years unless you have 20% down or more.
For the purposes of this calculator, the maximum amortization you can choose is 25 years.
If you have 20% down or more and want to know how much you qualify for based on a 30 year amortization, then complete the contact details in the middle of the calculator. We can connect and review your numbers.
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Why Calculate Mortgage Affordability
When you’re looking to buy a home, it’s handy to know how much you can afford. Being able to calculate an estimate of how much you’re able to borrow is an important part of setting your budget.
You also need to determine if you have enough cash resources to purchase a home. The cash required is derived from the down payment put towards the purchase price, as well as the closing costs that must be incurred to complete the purchase. We can help you estimate these closing costs with the first tab under the mortgage affordability calculator above.
Taken together, understanding how large a mortgage you can afford to borrow and the cash requirements involved will help you determine what kind of home you should be on the look out for. To learn more about mortgage affordability, and how our calculator works, have a read of the information below.
What Factors Impact The Amount You Can Borrow
Lenders consider several factors in determining the amount you qualify for, including:
Your debt-to-income ratio. Our How much can I borrow calculator? depends on an accurate input of your income and recurring debt. Youll want to really hone those figures down to a fine point, because lenders will be using them too.
Your loan-to-value ratio. This ratio is a function of the amount of money you put down. If you want to drill down on this calculation, use NerdWallets loan-to-value calculator.
Your credit score. This number impacts the pricing of your loan, more than how much youll qualify for. But thats really important. If you dont know your score, get it here.
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