It’s important to consider the characteristics of a house that will best suit your needs, lifestyle and your budget. What does “affording” a house actually mean?
What determines personal home affordability?What’s considered “affordable” when it comes to housing has a different meaning for everyone. In general, how much home you can afford, according to a mortgage lender is determined by:
- Your income
- Your debt-to-income ratio
- Your credit history
- How much money you have saved for a down payment — which influences both your monthly mortgage payment and whether you’ll have to pay mortgage insurance
- The mortgage terms you choose
- The specifics of the property
Gain clarity on needs…In other words, getting clearer on what you actually need in your home for it to be both comfortable and functional is key.
If you’re working from home regularly and would benefit from a quiet place to take calls and leaf through paperwork somewhere other than your kitchen table, it’s okay to shift from simply wanting an office to deciding that that space is a valid need.
If you’ve been promising your kids a dog for the past three years “just as soon as we have a yard,” it’s okay to include a fenced backyard on your list of must-haves.
If your spouse is an enthusiastic home cook and wants a more usable area to prepare meals, it’s okay to prioritize a kitchen with counter space.
… And wantsYou will need to parse out which needs are actual needs and which ones are passionate wants.
One helpful tactic for discerning a want from a need is to think of each in terms of being a dealbreaker.
- If you think you need a two-car garage, would a home that checks every other box be struck from the list if it only has a one-car garage?
- A formal dining room might be nice to have, but would it be a dealbreaker if an otherwise perfect property lacked that dedicated space?
- That house you keep thinking about that only has two full baths — are you really going to let it go because there’s no downstairs half-bath?
Unfinished basements can be finished, dated bathrooms can be remodeled, and disappointing refrigerators can be replaced. It’s worth keeping an open mind to afford an otherwise great home.
Improve your credit scoreGenerally speaking, the higher your credit score, the better interest rates you’ll qualify for on your mortgage. This can mean affording more home for the same price, so it’s worth considering a strategy for improving your credit score — even if that means delaying your purchase by a few months.
Increase your incomeIt sounds obvious, but it’s worth mentioning: The more money you make, the more home you can afford. Whether you take on a temporary second job to boost your down payment savings or you finally have a conversation with your boss about that raise you’ve earned, if you can increase your earnings, you may be able to increase the scope of your next home.
Decrease your debtThis goes hand-in-hand with improving your credit, but it also means you’ll owe less money each month. You can usually afford more house. Your mortgage lender can help talk you through this as they review your credit history during the pre-approval process.
Save up for a bigger down paymentThe more you can afford to put down on your home, the lower your monthly payment and the better your chances of avoiding — or at least shortening the term of — paying mortgage insurance.
There are also down payment assistance programs out there that can add to what you’ve already saved, if that’s something you’d qualify for — but talk to your lender to determine what might be best for you.
What house can I really afford?There are a number of variables that will influence what house you can afford, and some are more under your control than others.
The best way to get started is to talk to your Realtor and your mortgage lender about how to maximize your spending power in relation to your budget and your lifestyle.
Please consider The Myers Team your resource for all things real estate. We have over 35 years of real estate experience, specializing in (but not limited to) the Montgomery County area. If you are refinancing, want a recommendation, need a service provider or just have a home related question, please give me a call at 301-910-9910 or email me at email@example.com.