How Much Home Can You Afford | Baltimore First Time Home Buyer | Maryland

How Much Home Can You Afford | Baltimore First Time Home Buyer | Maryland

The single most important part of buying a house is figuring out how much you can realistically afford to pay.

You'll have to take a good look at your budget, debts, credit reports, and credit score.  Once you have a good picture of your financial status, start saving as much money as you can for a down payment, closing costs and any other extra expenses that come along with buying a house.  Extra expenses could include paying for a home inspection (around $300 - $500 depending on where you live), home warranty, repairs or hiring a moving company after the sale is final.

Depending on the condition of your finances -- if you have a lot of debt, errors on your credit report, or a low credit score -- getting ready financially could take six to 12 months or more!  If your credit score falls below 640, lenders may see you as a risky borrower.  It might be worth your time to take a year and work on building a better credit report before taking on the responsibility of a mortgage.  Also, if you qualify for a lower interest rate you could save thousands of dollars over the life of the loan.  

*Be wary of companies that offer to repair your credit for a fee.

Determining a Mortgage You Can Live With
There are a few basic formulas commonly used by lenders to determine how much of a mortgage you can reasonably afford.  These formulas are called qualifying ratios because they estimate the amount of money you should spend on mortgage payments in relation to your income and other expenses.  It is important to remember that these ratios may vary from lender to lender and each application is handled on an individual basis, so the guidelines are just that - guidelines.
Generally speaking, to qualify for conventional loans, housing expenses should not exceed 26 to 28 percent of your gross monthly income.  Monthly housing costs include the mortgage principal, interest, taxes and insurance.  For example, if your annual income is $30,000 your gross monthly income is $2,500, and $2,500 x 28 percent = $700.  So you would probably qualify for a conventional home loan that requires monthly payments of $700. 

In Closing

It is important that you select a home that will meet your family needs and keep your happy for years to come.

Next Steps
Make an appointment now with a REALTOR.

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Helene Kelbaugh of 

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