Can You Afford Your Dream Home's Payments?

Some people want to buy their dream home, but often begin their home search with no clue on how to make the payment. So, many get frustrated early in their search, thus wasting valuable time. First, you should take some time to write down your present amount of income, listing the current amount of debt is also encouraged. Once all the numbers are written down, you may find that it may not be a good time for you to push your borrowing power to the limit.

Statistically, you will end up spending about a third of your income on financing your home. This means that before you start to look for your dream home, you should figure out just how much of that dream you can afford. You may want to check your credit report, write down your monthly gross income, your wife’s income (if married and is needed to qualify), your credit card debt, and any outstanding auto loans. The total expenses for the house should not exceed over 36% of your total income.

The lender also looks at the cash the borrower must have to live on, and it is wise to have at least 3 months payment set aside incase of an emergency. There is an “Affordability Calculator” located online, which is a powerful tool to use when figuring out finances. However, the Affordability Calculator is used only for estimations, so it is never exactly correct. Another suggestion, is that the borrower gets a pre-approved and verified loan, before shopping for your home. It is wise to put a budget together and see how the borrower stands on his finances.