It’s exciting. It’s scary. It’s frustrating. That pretty much describes what it’s like to buy a house.
But some of the anxiety associated with the home-buying experience can be eased by answering one basic question: How much house can I afford?
GreenPath*, one of our friends at IAA Credit Union’s trusted financial wellness partners, helps answer that question:
Check your credit. Access your free a credit report and check it for errors. If you see anything wrong about your report, get it corrected before applying for a mortgage.
Budget! Lenders will ask about your monthly expenses. Set up a budget of expenses, including your outstanding debts such as credit cards, car payments, and student loans.
And here it comes! How much can I afford? According to GreenPath*, lenders prefer a mortgage payment to be no more than 28 percent of your monthly gross income. The real number to watch, however, is your total debt load -- your mortgage payment combined with all other monthly credit obligations. Keep that percentage below 45 percent of your gross pre-tax income.
Here’s a simple way to do the math:
[Your Monthly Income ] x 28 = [Take this answer and divide it by 100 ]
For instance, if your monthly income is $5,000, the math would look like this:
5,000 x 28 = $140,000
Then take: $140,000/100 = $1,400
In this example, most lenders would recommend spending no more than $1,400 per month on your mortgage payment.
Your lender is here to help. You want to be sure you are making the right decision when getting a mortgage and buying a home, so it’s important to work with your lender every step of the way!
Resources: IAA Credit Union Mortgage Loan Department (800) 676-2541. Website: www.iaacu.org
*GreenPath: Much of the information in this article was provided by GreenPath, a trusted financial resource partner of IAA Credit Union. Read the entire article here.
GreenPath/IAA Credit Union resource page (800) 676-2541.