{"id":15545,"date":"2021-06-02T16:43:10","date_gmt":"2021-06-02T22:43:10","guid":{"rendered":"https:\/\/www.richmondamerican.com\/blog\/?p=15545"},"modified":"2025-09-22T15:51:02","modified_gmt":"2025-09-22T21:51:02","slug":"find-out-how-much-mortgage-you-can-afford","status":"publish","type":"post","link":"https:\/\/www.richmondamerican.com\/blog\/find-out-how-much-mortgage-you-can-afford\/","title":{"rendered":"5 Ways to Figure Out How Much Mortgage You Can Afford"},"content":{"rendered":"\n\n\n

The prospect of purchasing your dream home is a thrilling one, but before you commit to a price, ask yourself this crucial question: \u201cHow much mortgage can I afford?\u201d It can be tempting to take the biggest loan you can get, but leaving out lifestyle and budget considerations can lead the way to steep monthly payments that keep you up at night. We came up with five ways to evaluate your financial situation and purchasing power, helping set the stage for a smooth, successful homebuying process. <\/p>\n\n\n\n

Put\ntogether an accurate budget.<\/strong><\/h2>\n\n\n\n

Thinking about buying a new home? It\u2019s important to ask yourself how much you should<\/em> spend, rather than how much you could spend. This distinction can help you determine a mortgage you can realistically afford, as can a detailed budget of your monthly income and expenses <\/p>\n\n\n\n

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\"New<\/a>\n <\/div>\n
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Ready to find a home that suits your taste and lifestyle?<\/h4>\n

Learn about the homebuilding process from beginning to end, so you know what to expect when you find your dream home.<\/p>\n

Get your free guide<\/a><\/p>\n <\/div>\n <\/div>\n<\/div>\n\n\n\n\n\n\n\n

Gross income<\/strong>
Your gross income is defined as your base salary plus any additional earnings, including wages from self-employment, Social Security benefits and alimony. While mortgage programs and lenders vary, a general guideline is to spend no more than 28% of your gross income on housing<\/a> <\/p>\n\n\n\n

Net income<\/strong>
Your net income is your gross income after taxes and other deductions.<\/p>\n\n\n\n

Expenses<\/strong>
Tally up your average monthly spending on everything from entertainment and recreation to new clothes and gadgets, and consider what, if anything, you\u2019d be willing to cut out to afford a new home. If you\u2019d have to spend every dime of your net income on the mortgage payment for your dream home, it may be a good idea to think a little smaller. <\/p>\n\n\n\n

Debt<\/strong>
Think student loans, revolving credit card payments and car payments: the total amount of bills that you must pay each month. <\/p>\n\n\n\n

Debt-to-income (DTI) ratio<\/strong>
This refers to the amount of your income paid toward debt each month. Lenders often use this metric to evaluate a prospective homebuyer\u2019s candidacy for a loan. To calculate your DTI ratio, simply divide your monthly debt by your monthly gross income. <\/p>\n\n\n\n

For example, if your debt is equal to $1,000 per month and your gross income is $5,000, your DTI ratio would be .2, or 20%. Some lenders won\u2019t consider borrowers with a DTI ratio above 36%,<\/a> as it can indicate an inability to assume more debt. <\/p>\n\n\n\n

Check\nyour credit report.<\/strong><\/h2>\n\n\n\n

If you want to buy a home soon, keep a close eye on your credit report. While checking your score isn\u2019t a strictly necessary step, it may help prevent surprises when you are pre-qualifying for a mortgage. By law, you\u2019re entitled to a free report from each of the three major credit bureaus annually. To request your credit report, go to annualcreditreport.com. Look for inaccuracies, such as accounts you didn\u2019t open, debts you\u2019ve paid off and other errors. If you have a low credit score, lenders may see your loan as higher risk, and you can expect to pay a higher interest rate. <\/p>\n\n\n\n

Learn\nmore about improving and maintaining good credit with these helpful blog posts:<\/p>\n\n\n\n

Five Ways to Help Maintain or Improve Your Credit Score<\/a><\/p>\n\n\n\n

Online Tools to Improve Credit<\/a><\/p>\n\n\n\n

Plan a down payment strategy.<\/strong><\/h2>\n\n\n\n

A down payment is the amount that you pay up front for a home. Many homebuyers think they need a down payment of 20% of the purchase price or more, and while it\u2019s true that a bigger down payment can make you a more attractive buyer <\/del>, you may be able to get into a new home with a significantly smaller percentage. <\/p>\n\n\n\n

Depending on the type of mortgage you choose, you should generally plan on making a down payment that\u2019s at least 3.5% of the price of the home. But, more is better. Why?<\/em><\/p>\n\n\n\n

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  1. Some loan types, like conventional loans, require a higher down payment. The more you can put down, the more financing options you may have.<\/li>\n\n\n\n
  2. Lenders may offer better rates and terms if you make a larger down payment.<\/li>\n\n\n\n
  3. If you have at least a 20% down payment, you may be able to avoid paying private mortgage insurance (PMI).<\/li>\n\n\n\n
  4. You\u2019ll pay less interest over the life of the loan.<\/li>\n<\/ol>\n\n\n\n

    To estimate how much you could save with a larger down payment, use a mortgage calculator.<\/a><\/em><\/p>\n\n\n\n

    Consider additional costs. <\/strong> <\/h2>\n\n\n\n

    In addition to the cost of your down payment and\nmonthly mortgage payments, remember that you\u2019ll almost certainly be responsible\nfor some of the following expenses as well. <\/p>\n\n\n\n

    Property taxes<\/strong>
    If you become a homeowner, expect to pay property taxes. Per the Tax Foundation,     rates vary significantly by state<\/a>, so it\u2019s good to be aware of the average in your area. Homeowners will always have to pay property tax, even once their mortgage is paid off. <\/p>\n\n\n\n

    Homeowners insurance<\/strong>
    Homeowners need insurance to protect their house and belongings from theft, damage and natural disasters. Many mortgage companies won\u2019t let you buy a property without proof of homeowners insurance that covers the purchase price. <\/p>\n\n\n\n

    Utilities<\/strong>
    These are unavoidable for the majority of homeowners, and include costs like electricity, water, heat, internet and cable television. <\/p>\n\n\n\n

    Association fees<\/strong>
    Your new neighborhood may assess monthly or yearly association fees, which can vary greatly depending on location, amenities and services provided (snow removal, landscaping, etc). <\/p>\n\n\n\n

    Closing costs<\/strong>
    Closing costs include the loan origination fee, appraisal fees, title search fees, credit report charges and more, and can total anywhere between     2% and 5% of your home\u2019s purchase price<\/a>.<\/p>\n\n\n\n

    Pre-qualify for a mortgage.<\/strong><\/h2>\n\n\n\n

    Pre-qualifying can be an easy way to determine how much you may be able to borrow. Contact a lender, such as HomeAmerican Mortgage Corporation* (866.400.7126), to get started. Whether you pre-qualify online or by phone, you will need to have the following items handy:<\/p>\n\n\n\n