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How Much Can You Afford to Spend on a House?
Calculating how much you can afford to spend on a house, and how much
credit you can expect to be approved for, is a complicated equation with
numerous factors coming into play. While expert advice is best obtained
from a mortgage professional, it is helpful to understand a number of basic
concepts.
How much debt are you carrying? Banks typically determine your loan
size based on your debt to income ratio (DTI); they will not allow your
monthly debt payments to be more than a certain percentage, often 36%,
of your income. So if you already have student loans or car financing, you
will generally not be able to receive as large a mortgage. DTI limits can
vary significantly between different lenders.
Do you have a stable, documented source of income? Even if you have
a lot of cash on hand, if you can’t prove that you have a reliable income
source, you may not be able to obtain a sufficient mortgage.
Are you planning to finance your payments with rental income? In
Lakewood, many people rely on rentable apartments to help meet their
mortgage payments. However, this income will rarely count on your loan
application, even if the apartment has all the necessary permits. While
a rental apartment can still help you afford your monthly mortgage
payment, do not rely on it to secure the loan in the first place.
What is your credit score? The higher your credit score, the lower the
interest rate you will be able to secure. This will impact your monthly
payments.
When you have determined the maximum monthly payment you can make,
you are ready to determine how much you can afford to spend on a house.
Additional Closing and Ownership Costs
Remember: In addition to the down payment and monthly payments, there
are other required fees.
Home appraisal: Required by the mortgage lender, this can cost between
$350 and $500.
Closing fee for attorney: This typically ranges from $1200-$1800.
Title policy: This is about 1% of the loan cost.
Homeowner’s insurance: While this is typically paid as part of the monthly
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