When considering buying a home, you must get familiar with your debt-to-income ratio (DTI). Moving forward…
Have you been thinking about buying a house but are worried about how much you can afford to spend? One of the biggest mistakes that some homeowners make is to sign for a house that they really will not be able to afford in the long run and that sets them up for financial trouble later on. That’s why looking for home loan options in Kansas City is your best bet.
It is very important to understand that our house is probably going to be the biggest investment that you are going to make in your life, so you want to do it right. Of course, figuring out exactly how much you can afford to spend should be one of the first things that you should focus on. You probably already have some experience with planning and implementing a budget for various reasons so doing this with a budget that takes your planned home purchase into account should not be too difficult.
When looking for home loan options online, you will find that there is usually a calculator on the websites that you visit which you can use to figure out what your mortgage payments would be for a certain mortgage amount with an expected interest rate and a set number of years (which is usually 30.)
Working on a budget
The first thing that you should do when it comes to planning a budget that will include your new home purchase is to write down how much money you have coming in; this will, of course, include any jobs that you and your spouse happen to have and any other sources of income such as rent for another property or other investments.
Once you know how much is coming in, you have to figure out how much is going out which can be tricky because you might overlook small expenses such occasionally dining out or small, unplanned purchases, but try to write everything down that you expect to spend on a monthly basis no matter how small it is in order to get a more accurate idea.
If you deduct what is going out from what is coming in you now have a figure that you can work with to know how much you can afford to spend on a house. Of course, you will want to spend as little of that as possible on a mortgage and not the other way around because that can set you up for financial disaster.
The 28/36 rule
You might not have heard of the 28/36 rule before. A financial adviser would recommend that you do not spend more than 28% of your total income on your housing costs and no more than 36% on the total debt that you happen to have in order to stay out of financial trouble. With all of this information in hand, you should have a good idea of what you can afford to pay for your new home’s mortgage.
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