How Much Home Can You Afford?

Determine how much you can afford to pay on a home

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  • First Time Home Buying
  • Pros and Cons of Agent vs. Owner
  • When To Buy a Home
  • Houses for sale for $5,000 or less across America
  • How to Avoid Loan Fraud
  • Home Buying: What To Avoid
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One of the first decisions you have to make once you begin your search for a new home is what kind of price range you can afford for your home loan. By determining this before you’re deep in the home search process, you can avoid disappointment and more accurately concentrate your efforts to find the home for you and your family. Go ahead and take the time to determine how much you can afford on your home loan so that the entire home buying process runs more smoothly.

Determining how much you can afford may be easier than you think. For the most part, how much you can afford on your home loan is determined by your annual gross income. The best way to come up with a ballpark figure is to assume that you can comfortably afford a home that is 2.5 times what you make in a year. For example, if you make $40,000 a year then you can consider purchasing a home that costs up to $100,000. This, however, is a very rudimentary system and many other factors must be taken into account.

For a more exact concept of how much you can afford on your home loan, utilize the many calculators available on the Internet. Unlike the “two and a half” rule, these calculators fake into account such factors as savings, interest, dividends, wages, alimony, car payments, credit card debt, and other expenses. Additionally, these calculators can be tailored to your specific loan needs by modifying the information you enter in terms of insurance, taxes, loan term, interest rates, and your down payment. After all of these factors are balances, you’ll get a more accurate sense of what you personally can afford on a home loan.

There are a number of these calculators all over the Web, so search thoroughly for one that best meets your needs. If you have a very clear-cut financial situation, you may not need an elaborate calculator. However, if you have a number of factors involved in your financial life or simply want to be exceedingly thorough, find a more detailed calculator.

What do you do if you would really like a larger home loan than you can realistically afford? Well, there are several steps that can allow you to afford a higher priced home loan over time.

• You can increase the amount of money coming in by trying to raise your gross annual income. This can be achieved through reviews at work, petitioning for a raise, or switching to a higher paying job.
• Decrease the amount of money going out by lowering your monthly debt. There are a number of ways to reduce your debt such as consolidating or devising a payment plan.
• If you can manage, increasing your down payment also allows you to afford a higher home loan.

Don’t get overly eager with the size of your home loan either. Even though a bank might allow you to borrow a certain amount of money, it doesn’t necessarily mean you can afford the mortgage on it. Also, think ahead. If you plan to make large purchases like a car or might start a family or have more children in the future, don’t forget the costs associated. Don’t forget the future when determining what kind of home you can afford.

By gaining pre-approval for a home loan, you will have a more accurate concept of the amount you can realistically pay for your loan. If, however, you’re simply curious or not ready to take steps toward getting pre-approved, calculating the amount you can afford to pay will at least give you a sense of what kind of homes to look at.

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