If you're planning to buy your first home, you're probably wondering how much home you can afford. It may surprise you that a lender doesn't have much concern for the price of the home you choose. As long as the appraiser thinks the home is worth the selling price, the lender will be satisfied.
When you are ready to make a buying decision, you will first need to ask a lender to give an indication of your ability to secure financing. You will request a pre-approval to finance a home purchase. You will be asked to submit certain information about your employment, income, and expenses, along with authorization for the lender to check your credit.
After successful verification of data, the lender will tell you that you will be able to buy a home. How much can you pay for the home? It depends on the terms of the sale and financing. The lender will tell you what size payment they will allow you to make, and you will use that information to determine the highest sale price you can afford. If interest rates change, the target price of the home will change. For example, if the lender says your maximum payment is $1,000 and current interest rates are 5.5%, you will be able to borrow $179,000 for your new home. If rates go down to 4.5%, you will be able borrow about $197,000. If they go up to 6.5%, you will be able to borrow about $158,000. That's a pretty wide range, and it illustrates how changing interest rates can change your price range.
So, what is the target price for your new home? It depends on the terms. Interest rates can change rapidly, as they have done in the last few weeks. Unlike the price of houses, interest rates are almost impossible to negotiate. With rates trending upward, it's probably better to act sooner than later if you're thinking about buying.
Call me to arrange a no obligation (honest) home buyer orientation and strategy session in my Eagan office. Even if you are locked into a lease and can't move until May or June, it's not too early to begin formally planning. Call me now.
Comments(4)