How Much Home Can I Afford? | How To Buy A Home Without Going Broke | Wealth Creatives

In this video, I’ll answer this mindboggling question – how much home can I afford? I’ll teach you how to buy a home without going broke and stressed out.

Hello creatives in this video i’ll answer this mind-boggling question how much home can i afford i’ll teach you how to buy a home without going broke and getting stressed out we all want a good house somewhere where we can raise a family and retire comfortably simply put we require somewhere we can call home the problem is it’s becoming more expensive by the day

To own a home with the average american spending about 33 percent of their hard-earned income on housing it doesn’t make sense for everyone spending so much money on housing is part of the reason why some people are left broke they can’t afford their monthly basics when all they have to show is a huge house remember you don’t have to spend all your savings

On the house purchase there is a reason why there are mortgages besides once you have the down payment and a steady income you can own a house without going broke don’t worry if you’re unsure on how to do the calculations to determine how much you can afford i’ll take you through the basic rules of owning a home additionally i’ll provide you with some extra

Tips to help you buy your dream home but before then if you’re new here consider subscribing to this channel and continue receiving great videos like this one don’t forget to hit that notification bell so you get informed every time i publish a life-changing video now let’s begin four basic rules for owning a home number one the 20 rule overall the down payment

Says a lot about your purchasing power to ensure that you can afford a specific house do the calculation to determine if you can pay at least 20 of its total value as a buyer the down payment originates from either your savings or home equity home equity refers to the market value of your current home minus the outstanding mortgage debt if you can combine the

Two then you’ll raise the down payment with ease if you can’t raise the 20 down payment and find it hard to get a home loan i advise you to consider fha and va loans that i’ll discuss later in this video but why 20 well the percentage lowers your interest rate it also goes a long way in helping you avoid paying for private mortgage insurance pmi which costs up

To 1.2 percent extra paying 20 also means you’ll be borrowing less and you’ll have a smaller balance to pay off quickly the takeaway if you can deposit at least 20 do it but if not consider other options number two the 28 rule the front end ratio or the house expense to income ratio you mustn’t spend all your monthly earnings on mortgage repayment that’s why

The 28 rule sometimes known as the front-end ratio is essential this rule dictates that you mustn’t spend more than 28 of your monthly income on a mortgage to get the front-end ratio you should divide the projected home expenses with your total monthly income if for example you earn six thousand dollars per month you shouldn’t spend more than 1560 on a mortgage

Which represents 28 of your earnings most banks look at the front-end ratio and that’s why it’s important to self-assess before you approach the lender if your front-end ratio is not more than 28 you’ll likely get a home loan if you meet the other requirements however it doesn’t mean that you’ll be rejected right away if your front end ratio exceeds 28 some

Lenders may give you some allowance if your credit score is sound and if you meet their other individual requirements the takeaway when it comes to applying for a home mortgage keep your front end ratio below 28 percent number three the 36 rule the back end ratio or the debt to income ratio the mortgage is not the only debt you have to consider you also have to

Consider other debts like auto loans credit card debts child support and student loans amongst others if you have debts other than the mortgage you should use the 36 rule and not the 28 rule the 36 rule dictates that you shouldn’t use more than 36 percent of your income to pay for debts including the mortgage for example if your monthly mortgage is a thousand

Dollars and you also have a similar obligation for the other debts your total monthly payment will be two thousand dollars if you earn six thousand dollars each month then the debt to income ratio will be 33 which complies with a 36 percent rule nevertheless if you have a 2 000 monthly financial obligation but only receive 5 000 your debt to income ratio will be

40 which is not in compliance with a 36 percent rule in the case of non-compliance you have to find a way to bring in more money to boost your income if not then look for a cheaper house and do the calculations all over again bankers will also look at the 36 rule which they refer to as the debt to income ratio just as much as the front-end ratio when assessing

Your mortgage application the takeaway do your math to ensure you don’t have to spend more than 36 percent of your gross income on monthly debt payments number four mortgage to salary ratio another rule of thumb for buying a house is that the mortgage amount shouldn’t exceed your gross annual income more than three times that means if you make a hundred thousand

Dollars a year then the mortgage shouldn’t be more than three hundred thousand others say that the mortgage shouldn’t be more than 2.5 times your gross annual income in that case the mortgage shouldn’t be more than two hundred and fifty thousand dollars if your yearly pay is a hundred thousand but why is that the case the rule protects you from obtaining a

Mortgage that you can find hard to pay like the rest it confines you to within a comfortable budget to ensure you aren’t left broke after you buy a home the problem with this rule is that it may not be relevant if you get demoted or fired and land a different but low paying option that’ll mean operating on a lower income level and as a result you are likely to

Be overwhelmed with the mortgage the takeaway consider this rule if you have a more stable income to enable you to pay for your mortgage comfortably other considerations these factors are also essential in shopping for a house that you can afford a set a home purchasing budget the rules that we’ve discussed will only help you to determine if you can afford a

House but it all boils down to your budget if the numbers by the lenders don’t agree with yours stick to yours you can’t compromise on your budget just because a home lender asks you to do so b maximize on down payment i mentioned a 20 down payment on the house but it doesn’t have to be your limit if you want to maximize the chances of getting the right home

Loan quicker consider paying more than 20 of its value up front it’ll also mean paying lower rates and having a smaller balance to clear additionally it means having a faster payment timeline and eliminating mortgage insurance you should however consider your budget an income you can’t go all out and spend all your savings and emergency fund on the down payment

C budget for home closing costs you will probably freak out which you shouldn’t but the down payment is not the only payment you’ll have to save up for you’ll also need to save up for the closing costs which are roughly four percent of the house’s total price the closing costs cover homeowner insurance lawyers fees home inspection and appraisal charge don’t

Worry about the calculations as the lender or the real estate person will handle that and inform you d get a pre-approval you have to know the difference between mortgage pre-qualification and a mortgage pre-approval the lender may pre-qualify you just from learning about your income down payment potential and assets however that doesn’t pre-approve you for the

Mortgage the pre-approval takes more work and time for example the lender has to ascertain the financial information that you provide it also takes time for the lender to decide on the amount to grant you however it would help if you remember the rules that i’ve shared to get the best mortgage e assess your credit score you have to know your credit score as

It provides you with more leverage when negotiating for a mortgage if you have a good credit score about 760 or higher it’s easier to get a mortgage as low as 1.5 percent and once you find a low interest rate you’ll get to save more money over the mortgage’s lifespan remember to check on your credit score several times before you go buying a house you can do it

On credit karma for free f fha rules one of the most significant benefits of procuring an fha insured mortgage is to have to pay smaller down payments the closing costs are also lower and the credit requirements are flexible on the flip side however there are a few extra costs you have to factor in for instance you need additional mortgage insurance and that is

Often costly when it comes to the debt income ratio you aren’t expected to spend more than 43 percent of your income you also need to assess your credit score if the score is between 500 and 579 you’ll need to make a 10 down payment but if it’s above 579 you’ll need to make a 3.5 down payment you also need to have a steady income proof of employment and a mortgage

Insurance premium generally these are the three reasons why you might be denied an fha loan and they are a debt to income ratio that’s more than 43 percent bad credit records and unsteady income g va loans unlike fha loans va home loans don’t require a down payment or private mortgage insurance the department of veterans affairs backs the loans and as a result

They have lower rates flexible underwriting and multiple financing options mind you you can refinance your existing mortgage with a va loan but just like any other home loan there are several requirements for obtaining a va loan for example you have to be a veteran or a spouse to a departed veteran in conclusion you have to consider your income the asking price

And the mortgage before you can buy a house with the rules and the tips i’ve shared it is doable all the best i know this video is exciting and you loved it

Transcribed from video
How Much Home Can I Afford? | How To Buy A Home Without Going Broke | Wealth Creatives By Wealth Creatives