Browsing through pictures of top-of-the-line kitchens or beautiful backyard landscapes is what entices many people to start their next house hunt. However, deciding on a budget should be the first step in your home search. With this task comes research, pulling old bank records and pay stubs and, most importantly, working with a professional lender. Your Baldwin Realtor may have some words of wisdom to help you find the right lender that will meet your specific financial needs.
Debt-to-Income Ratio: Follow the 28/36 rule
To determine how much house you can afford, most financial advisers agree people should spend no more than 28% of their gross monthly income on total housing expenses. You should spend no more than 36% on total debt service, including housing and other debt such as car loans. The 28/36 rule is the tried-and-true home mortgage affordability tip to take into account when establishing a baseline for what you can afford to pay every month.
Knowing what you can afford can help you take financially sound next steps, like purchasing a first home. The last thing you want to do is jump into a 30-year home loan that’s too expensive for your budget, even if you can find a lender willing to write the mortgage. Use your debt-to-income ratio as a rule of thumb, and you’ll be well on your way to a stable life of homeownership.
Set a budget
For most people, a house is the most expensive purchase you’ll make in your lifetime. There aren’t many other opportunities to drop hundreds of thousands of dollars in one sitting… or over the course of 30 years. This is why determining a set budget for buying a home is critical in the homebuying process. To better understand what price is right for you and for your financial situation, talk with a Realtor.
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