Check 4 numbers to see what you can responsibly afford
There is no minimum salary you must meet to own a home. Many factors play a role in determining home affordability. Understanding these factors – and where you stand with them – before beginning the home buying process will help you avoid surprises on your way to getting approved.
Lenders use these four factors to determine what you can responsibly afford:
1. Annual Income
Annual income plays a big role in finding the right price range. Both the borrower and the co-borrower’s income are reviewed. All forms of income are taken into account, such as regular salary, commissions, tips, bonuses, social security and investment income. Presenting all forms of income will paint a more detailed picture of your situation and what you can afford.
Debt, such as financial liabilities and outstanding loans, could make it harder for you to obtain a loan. Loan officers are able to look at your credit history, which is used to calculate a credit score and reflects your spending habits. High credit scores often lead to better interest rates and approvals. So, keep up with your financial obligations and show that you are a reliable borrower.
3. Current Assets
Current assets demonstrate your ability to make a down payment. Without enough assets, including money in bank accounts, stocks and bonds, you may not have the ability to pay the upfront costs of buying a home. Inability to make a down-payment of 20% will lead to monthly private mortgage insurance (PMI) payments. These additional costs affect the affordable price range because they are an added expense to your loan.
4. Debt-to-Income Ratio
Debt-to-income ratio (DTI) is the percentage of your gross income spent on financial liabilities. Higher salary and income with lower financial liabilities are ideal and will help individuals obtain a preferred DTI and qualify for higher loans.
All things considered, it’s essential to be realistic with yourself when determining home affordability. Look at all of your household obligations and the costs tied to them. Compare them with your salary. This calculation will help you see what monthly mortgage payment you have room for.
Get in touch with vLoan today, and we’ll walk you through calculating your Purchase Power before you start a mortgage application – and before you even begin searching for a home. Get in touch with us at 1-844-77-vLoan to get started today.