Short, sweet and simple advice about how to decide how much you can pay for a home…
With this afternoon’s meeting with a couple that is looking at buying a home in Upstate South Carolina, I thought it would be appropriate to discuss yet again:
How Much Home Can You Afford?
One way to look at this question is with some general rule of thumb guides:
U.S. Treasury: 31% front-end DTI (debt-to-income) ratio, and less than 55% back-end DTI
FHA (Federal Housing Administration) Old:29% front-end DTI, and 41% back-end DTI
FHA New:31% front-end DTI, and 43% back-end DTI
Fannie Mae:36% benchmark back-end DTI with a maximum of 45% with “strong compensating factors”
Conventional loans: 28% front-end ratio, and a 36% back-end ratio
My rule of thumb is what are you paying today?
Is that a comfortable amount?
Then why would a potential home buyer look at going from paying $1000 in rent to making a $1500 house payment?
Yes they may be able to afford it. But why change the amount in your budget dedicated to housing by a radical amount? With today’s low interest rates, and the bargain homes on the market -you might be able to buy for less a month than you are paying in rent. You need to talk with a lender, if you are not sure whom to call, contact me and I will send contact info for several lenders.
Perhaps a my way to qualify homeowners by looking at the family’s existing budget and deciding on realistic & affordable house payment based on current net income and monthly expenses is simplistic. But the cold hard fact is if you are stressed about how much your payment is, how can you truly be happy?
You need to make sure your house payment fits your budget, not the other way around.
Just because a lender will loan you a certain amount, does not mean you have to spend all of it.
Decide on the price range of homes by researching what mortgage amount matches the monthly payment you are comfortable with. Just because you purchased a home does not mean you can suddenly afford to pay more!
Of course, there are many other questions to ask yourself. But before you start spending Sunday afternoons going to open houses, browsing the internet and picking up the latest real estate books – determine your budget. Do not waste one second of your valuable time until you talk with a lender and determine what you can afford. The decision about how much you will spend is between you, your lender and your budget.
I just want you to be happy and find you the best home for the money. If you decide to spend less than the bank will loan you, that is more than OK with me.