Buying a home is a huge financial undertaking...quite possibly the largest one of your life. But it also offers a great way to increase your personal wealth if done correctly. However, you do not want to stretch yourself so thin that you struggle to make your mortgage payment each month. That is where the affordability factor comes in. How much home can you afford and still have a life to live?
The Affordability Factor
Lenders want to see your total debt stay below 40% of your monthly income (before taxes). They also like to see your mortgage payment (including interest), taxes, and insurance at 28% or less of your monthly income. So, if your monthly household income before taxes is $6250, your total household expense (mortgage, taxes, insurance) should not exceed $1750. Some lenders offer programs that allow a higher debt-to-income ratio. However, this may affect your affordability factor. Remember, just because you qualify for a certain amount on a Tucson property does not mean that you need to spend that much.
Think about the next five years. Do you plan on getting married? Starting a family? Retiring? Even buying a new car affects your affordability factor. Stick to a budget based on what you can afford today. Then, you should be able to handle your house payment in the future without any issue.
Another way to understand your affordability factor is by obtaining a pre-approval from your lender. They look at your credit score, your bank statements, and all of your other financial information over the past two years to help determine how high of a loan you qualify for. Again, keep in mind that you do not need to spend the maximum amount a bank says you can afford, though. Stick within a budget that you feel comfortable with so you do not overextend yourself. A pre-approval letter also strengthens your offer when you find a home you like.
Your Tucson REALTOR® can help you with any questions you may have as well as suggest potential lenders to talk to about your home purchase. Nerd Wallet offers a fantastic, easy-to-use Affordability Calculator to help you determine how much home you can afford right now based on several factors. Feel free to contact me when you are ready to start looking for your next Tucson home.
Rebecca Schulte, Schulte Real Estate Group, Your Source for Tucson Real Estate