In order to purchase a home, you, of course, need to have money. Many people rush into a home purchase only to discover later that they could never afford the home they purchased. Before purchasing a house, it’s wise to look at your monthly income to determine how much square feet you can afford. Here are 5 steps to determine how much house you can afford:
Determine your available monthly income.
Look at your bank account. How much money is actually deposited into your account each month? Once you discover that number, subtract from it all your current expenses and bills. You should include expenses like groceries, gasoline, car payments, school loans, etc. You should not include current housing payments (like your apartment rent) since you’ll be applying this amount to your new home.Determine how much of a down payment you will pay.
A down payment is the initial chunk of money you put down on a house. The remaining cost of the house is what you will end up borrowing and paying back. A down payment is viewed as a percentage of the total cost of the house. So if you buy a $100,000 house, a $10,000 payment at purchase would be a 10% down payment. There are different reasons to put down different amounts on a house, but the more you put down, the lower your mortgage will end up being. If you end up putting down less than 20%, most lenders will charge you insurance on your mortgage (also known as Private Mortgage Insurance or PMI).Decide on your type of mortgage.
There are all kinds of mortgages out there with varying years to pay it back. The two primary types of mortgages are ARM’s (Adjustable Rate Mortgages) and Conventional, Fixed-Rate Mortgages. ARM’s offer you a mortgage with an interest rate that changes based on market conditions. If the market is good and has been for a long time, this is an appealing option. It usually has the lowest interest rate to begin with, but the rate can become much higher if the market is poor. Conventional, Fixed-Rate Mortgages offer you a steady interest rate you can rely on even when the market takes a turn for the worst. It may not be the lowest interest rate at first, but it’s something you can depend on. Most of these mortgages are based on 15, 20, or 30-year payback periods.Discover your interest rate.
Interest rates depend on what type of mortgage you decide on, how much your down payment is, your credit score, and what lender you use. Currently, most mortgage rates in Texas range from 3.5-4.5%. Interest rates vary from person to person. United Credit Union is here to help you make the biggest purchase of your life and discover your interest rates. Call us at 903-595-3604 to get started on your mortgage approval and see the United CU difference.Do the math.
Take these figures you’ve determined and use them to calculate how much house you can buy with our free mortgage calculator: https://www.unitedcu.coop/belong/calculators/mortgage-calculator/
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