How Much Home Can You Afford?
Before you start thinking about shopping for a new home or having a custom home designed and built, you need to answer one key question – how much home can you truly afford? Finding the answer to this single question will provide you with the information you need to not only start your home search, but also help you find the right home for your needs and budget.
Here’s everything you need to know about determining how much home you can realistically afford from our custom home builder in GA.
Before You Start: Determine Your Debt-to-Income Ratio
When you meet with a mortgage lender, one of the things they will do first is determine your debt-to-income ratio (DTI). This percentage will give the lender a baseline to use when determining your financial ability to repay the loan. To find this number, the lender will compare your gross monthly income against two types of debt: (1) the amount of money you spend on core housing-related expenses, and (2) the amount of money you spend on non-housing expenses (credit cards, auto loans, student loans, etc.).
If your DTI is too high, then the lender will more than likely deny your application because she may deem you too high a risk for falling behind on your mortgage payments. For most lenders, the maximum DTI ratio is 41 percent.
Determine Your Housing Ratio
Think about how much of your monthly income you can dedicate to your housing expenses and what percentage of your income that relates to. Your housing expenses include things such as principal, interest, property taxes, insurance, any HOA fees, flood insurance (if required), and any other costs associated with owning your home. In most cases, lenders prefer the applicant’s housing ratio to be 30 percent or lower, but the percentage can be a little higher as long as the applicant’s DTI ratio is low.
Your Loan Type Will Affect Your Down Payment
There are four primary types of mortgage loans available to choose from. These include Conventional mortgages, FHA mortgages, USDA mortgages, and VA mortgages.
Conventional mortgages are sold to Fannie Mae or Freddie Mac and they tend to require substantial down payments of 20 percent or more. Meanwhile, FHA mortgages can be acquired with just 3.5 percent down for those with credit scores above 580 (10 percent for those with scores below 580). USDA and VA loans can be issued with down payments as low as zero dollars in some cases, but in the case of a VA loan, the applicant needs to be active duty or retired military.
Don’t Forget to Consider Closing Costs
Depending on where your new home is located, your closing costs can account for 2 to 5 percent of your total home purchase transaction. But, both Fannie Mae and Freddie Mac permit your builder or home seller to pay up to 3 percent of the home’s price to help offset your closing costs. If you’re going with an FHA loan, then your builder or seller can pay anywhere from 3 to 6 percent.
Let a Trinity Custom Home Builder in GA Help You Find the Right Home at the Right Price
When buying a custom new home, you need to ensure that the amount you spend is something that you can comfortably afford. Be aware that the amount you can get approved for does not automatically mean that you can afford that much home. Take the time to look over your finances and choose the mortgage type that best fits your lifestyle and you’ll be in the prime position to purchase the right home at the right price.
If you’re looking for a custom home builder in GA who can design and build your new home to your exact specifications and budget, then just call Trinity Custom Homes today at 888-818-0278. Let our experienced builders and designers help make your dream of owning a gorgeous, one-of-a-kind home a reality.