By Mrs. Becker, guest blogger, MortgageFit.com
In the Housefax spirit of “know before you buy,” knowing how much you can comfortably afford to spend before you make an offer is fundamental to your homebuying decision. Calculating mortgage really can be child’s play, and knowing how much you can afford can be done easily on your own.
You may hear financial experts advising to clean the credit, pay off the debts and get your financial life in order before you start looking for your dream home. Did you do your own due diligence to get proper financial counseling or knowledge before you started your shopping while purchasing your dream home? If it’s no, then you can get trapped by unscrupulous real estate agents and mortgage brokers who may push the largest homes to you regardless of your financial state. Before you make an offer, you need to get a reality check and calculate how much home you can afford.
Here are some of the important points that you can consider if you’re planning to calculate the amount you can afford on the basis of your income:
1. Access your financial state: If you want to know how much home you can afford, then make sure you evaluate your financial state to get a bird’s eye view. You can calculate your annual gross income from your pay stub or on your 1040 tax return. Most of the financial planners may suggest that a mortgage should not take up more than a quarter of the your after-tax income. So, you need to calculate your after-tax income and then determine how much home can you afford. When you analyze your income, you need to understand whether or not you have stable income as it can help you make decisions while taking out a mortgage.
2. Know about the insurance and taxes: When you calculate your mortgage payment, make sure you incorporate insurance and taxes. Your payment may increase when you include insurance and taxes and analyze whether or not you can afford the payment. If you’re not aware of it, then it may create budget problems in future. You can consult the mortgage broker or homeowner insurance agent to get a reasonable estimate that will be added to your mortgage payment.
3. Review your credit score: Before applying for a mortgage, make sure you review your credit score. If your credit score is low, below 700, then your mortgage payment can increase. You may need to start working on your credit score and reestablish your credit report. Start paying off your pending bills and eliminate your debts, so that you can start repairing your credit score so that you can calculate the amount you can afford. You can easily get affordable mortgage if your credit score is low.
4. Down payment on your mortgage: You’re required to find out how much money you can afford to put down, so make sure the amount is affordable for you. The ideal amount for a homebuyer is 20% of the total cost of mortgage. If you make a considerable amount of down payment, then you can get better rates on the loan.
Keep these points in mind so that you can buy a home within your means, and consult with a financial expert first before buying your dream home.