Mark has compiled a list of factors that can determin home affordability. It's good information to pass to your clients. Thanks Mark. Have a great week.
6 Factors That Help To Determine Home Affordability
There are various factors that determines "how much home can I afford". These are interest rates, property taxes, home insurance, closing costs, housing ratio, debt-to-income ratio, etc. The first time home buyers can know about “how much home can I afford” by analyzing these facors.
Factors that determine home affordability
The six factors that determine "how much home can I afford" are given below:
- Interest rate: This is one of the major factors that help you to determine “ how much home can I afford”. If you have a good credit score (760 to 850) then the lenders will charge less interest rate for the home loan. But if you have a bad credit score (500 to 570), then you have to pay a high interest rate on the home loan.
- Property taxes: You have to pay property tax when you buy a home. The amount of money that you have to pay as property tax depends upon the location of the home. The property tax can be hundreds or thousands of dollars. Therefore, you should check whether you can afford to pay the property tax before purchasing a home.Home insurance: You need to purchase a private mortgage insurance if you can't make 20% downpayment on your home. This means that you have to pay the monthly insurance premium along with your mortgage interest. Therefore, you have to check whether you can afford to make these payments.
- Closing costs: You have to pay closing costs when you purchase a home. Sometimes, the closing costs are very expensive. You can get an idea about the amount of money that you have to pay on closing costs from your real estate agent. Therefore, you must check whether you can pay the closing costs.
- Housing ratio: This is one of the major factors that help you to determine “how much home can I afford”. This ratio cannot exceed 28% of your gross monthly income.
- Debt-to-income ratio: According to the rule, the debt-to-income ratio cannot exceed 36% of your gross monthly income.
You need to analyze these six factors in order to get an idea about "how much home can I afford".