Expert recommendations to determine how much you can afford to spend on a mortgage vary. Some say you should never spend more than 25% of your gross income on your mortgage, while others recommend keeping the number below 33%. Less conservative advice may suggest an even higher percentage.

This is because figuring out how much house you can afford is not as simple as following a one-size-fits-all formula. Instead, you need to consider your lifestyle, changes you anticipate in the future, and your mortgage pre-approval to determine your housing budget.

Keep reading for some things to keep in mind as you plan to buy your first home.

Mortgage Pre-Approval

Getting pre-approved for a mortgage is an essential step in determining your housing budget. Make time to talk with a loan officer, who will look at all of the relevant documents and give you an idea of what the mortgage lender will say you can afford.

The amount you are pre-approved for is a great first step in determining your mortgage budget. After taking into consideration your debt to income ratio, your credit score, your income, and your assets, the experts will decide what they believe you can afford to pay for the foreseeable future.

Lifestyle

There are some details that your loan officer won’t be able to factor in, like the lifestyle you lead or plan to lead. As you are determining your mortgage budget, consider whether you plan to travel, entertain, or take up new hobbies.

Having enough financial margin to support your lifestyle is essential in making sure you buy a home you can truly afford. Consider these lifestyle factors as you come up with your budget:

How do you plan to furnish the home
Your savings goals
Travel plans
Convenience expenses, like eating out, housekeeping, and lawn care services

Maintenance and Emergencies

When determining your mortgage budget, you need to consider how prepared you are for the expected maintenance and emergencies that come with owning a home. Depending on the size and condition of the home, you can reasonably anticipate the emergency fund you should have on hand.

Take this into consideration as you look at potential properties. Even if the purchase price fits within your budget, an older home that will need a new roof or water heater in the near future may be a bigger investment than you are ready to take on. Similarly, a new construction home that comes with a slightly higher price tag may cost you less in the long run because the appliances, roof, HVAC, and other parts of the home are brand new.

Future Plans

None of us can predict the future, but you can make educated decisions when determining your mortgage budget by considering your plans. As you consider your monthly mortgage payment and how well it fits with your income and expenses, consider how your income and expenses may change in the future. If you plan to stay in the home for more than a couple of years, you want to make sure the payment is sustainable for a long time.

Consider these potential future plans as you decide what monthly mortgage payment is right for you:

Family planning: Do you have children? Are you planning to start a family or grow yours? Will this affect your financial situation, either by adding in childcare costs or lowering income?
Retirement: If you plan to retire in this home, do you know what your retirement income will be and how well the mortgage payment will fit within it?
Continuing education: If you plan to go back to school to get another degree, will the home remain affordable during that period?
Renovations: Do you hope to renovate or remodel the property? If so, are you planning to wait until you can refinance and use those funds to renovate, or do you hope to finance it from your own savings?

When you are ready to begin the process of buying your home, we have a team of experts to walk with you every step of the way. Contact us today to find out how we can help!

More Great Tips for Buyers:

5 Benefits of Buying a House with Good Credit

The Most Important Steps Toward Buying Your First Home

First Time Homebuyer Mistakes to Avoid

Tips on How to Get a Mortgage Without Tax Returns

What Determines Your Mortgage Rate

As you prepare to buy a home, reminders of the importance of your credit score will be everywhere.

Credit scores tell your lender what kind of borrower you will be, and are one of the main factors that determine your mortgage terms.

There are many benefits to buying a house with good credit! Keep reading for some of the perks you can expect as a home buyer with a good credit score, and for help improving your credit score before buying a house, check out these tips.

1. Lower mortgage insurance rates

When you buy a home with a down payment less than 20%, which is often the case for first time home buyers and can be a great way to get into a home, you will almost always pay private mortgage insurance, or PMI.

There are a few different ways PMI can be paid. Single premium PMI is paid upfront, whether in cash all at once or through financing options. Monthly PMI is the most common form, and is paid monthly when you make your mortgage payment. A split premium PMI is a hybrid of the two, where some of the insurance is paid up front, while the rest is added to the monthly mortgage payment. Finally, some lenders offer lender paid PMI, where the lender covers the cost of PMI in exchange for a slightly higher interest rate on the loan.

The most favorable PMI options, including the lowest premiums, will be offered to borrowers with excellent credit scores. This is one way in which buying a house with good credit pays off, literally.

2. Lower interest rate

The interest rate on your mortgage is likely the term you are most concerned about, and that is for good reason. An interest rate change of just half a percent can make a significant difference, equally thousands of dollars over the life of the loan.

Buying a house with good credit means access to the lower interest rates your mortgage lender has available.

3. Better homeowner’s insurance rates

When buying a house with good credit, your credit score will even affect your homeowner’s insurance premiums. Excellent credit opens the door to lower insurance premiums, as well as different insurance options.

Remember: your good credit is your financial reputation to agencies when they decide whether to work with you.

4. Easier, sometimes faster underwriting approval

Underwriters have the important job of reviewing your mortgage application to determine whether you are likely to make your monthly mortgage payments for the foreseeable future. If you don’t have a strong credit score, underwriters will need plenty of other evidence that you are capable of making these payments.

On the other hand, buying a house with good credit shows the underwriters that you have a history of taking on debt with payments you can handle. You may receive final approval faster than you would with a lower credit score.

5. Additional loan options

Looking at more than one mortgage option is a smart financial move. Depending on a variety of factors, you may be able to choose between a conventional loan, an FHA loan, a USDA loan, a VA loan, and more. The better your credit score, the more options will be available to you. When you are buying a house with good credit, you loan officer will be able to show you a longer list of loan options in order to help you find exactly the right mortgage for your needs.

To find out how much you might be pre-approved for, schedule a conversation with one of our loan officers today! And for more information about buying a home, contact us any time.

Steps to Determining Your Mortgage Budget