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Are you house hunting? If so, this is an exciting time! You’re on the path toward laying down a foundation for your future.
While you’re searching, you’ll be faced with the age-old question: What can I afford? To answer it, you’ll need to find out what monthly mortgage payment will fit into your budget and how much you may be able to borrow.
Take a hard look at your budget. How much of a mortgage payment can you fit alongside your other expenses?
Many experts recommend that your mortgage payment (including home insurance, property taxes, and any mortgage insurance) be 28% or less of your gross monthly income. For example, if a couple’s annual household income is $120,000, their gross monthly income would be $10,000. Therefore they’d want to keep their monthly mortgage payment to $2,800 or less.
Now, that doesn’t mean you should spend up to that 28% mark; evaluate your other expenses and anything you can cut out of your budget to find a number that works for you. You might even buy a less expensive house in an effort to live below your means, and then use the excess funds elsewhere.
Remember, you may pay more for utilities, maintenance, and yard care than you did at your previous residence, especially if you’re moving to a larger house or from an apartment to a house.
This answer is based on mortgage qualification requirements, which vary by lender and type of mortgage. Generally speaking, the factors below play a major role in determining whether you qualify for a loan, how much you can borrow, and at what interest rate — which affects both your monthly payment and how much home you can afford.
You can ask a lender for a prequalification before you shop or apply for a mortgage to determine how much you may be able to borrow.
By figuring out how much home you can afford, you’ll set yourself up for a more successful house hunt. And you’ll lay down the foundation for a financially comfortable and confident future in your new home.
If you have questions about home affordability or mortgage qualification, learn how a Citizens Bank Loan Officer can help you with your home-buying experience.