If you’re shopping for a new home you may have to base your decision on what your income will allow you to buy. But there are some good options if you are open to make some compromises. You might have to travel a little farther to get to work, but in the end you may feel that it is a worthwhile trade for purchasing the home of your dreams. Purchasing a home can be an eye opening process, you may have believed that you could afford more home for your money, but realistically you can’t.
Lenders base the amount of money they will lend you on your income. They use the amount of your income to offset the liabilities associated with the loan. The amount of income that you need to purchase a home will depend on how big of a payment you feel is comfortable when included in all of your other monthly obligations. It is important to keep in mind your other financial obligations when considering mortgage payments.
Many lenders will base their decision on your debt-to-income ratio, which refers to how much of your monthly income goes toward repaying existing debt. To help you have an idea of where you stand before consulting with a lender, simply add up all of your monthly expenses and look at what you have left. If you feel that you have too much debt, you may opt to pay some of that off before consulting a lender and purchasing a home.
The next thing that you will need when you’re read to purchase a home is a down payment. This is an important factor to consider when determining how much income you will need to buy a home. Many lenders will require a minimum down payment of at least 5 percent. If you are not prepared for the down payment the amount required may come as a bit of a shock to you.
There are many expenses involved with purchasing a home, it is important that you understand all of them and have planned to meet the financial obligations that you will be faced with. If you take some steps prior to meeting with a lender, such as clearing up old debt and paying down most of your new debt you shouldn’t experience too many difficulties. However, if you are currently paying out most of what you are bringing in, you may have a more difficult time acquiring a home loan.