How Much Home Can You Afford?

Although figuring out what you can spend is straightforward (simply talk with a great lender), figuring out what you can afford requires a close examination of your personal needs and finances. For example, while you may be approved for a monthly payment of $6000 given your income, you may be comfortable only paying $4000 given your lifestyle needs, stress tolerance and investing style. So look at your income and expenses, then ask yourself what monthly payment you are comfortable paying. Some additional questions:

• Do I have assistance for the down payment? (e.g., government aid, family assistance or equity sharing)
• How much down payment can I make?
• What is my budget for purchasing and maintaining a home?

Ultimately you must talk with a great lender to figure most of these variables out. If you need a recommendation, just let me know.

Basic Terms
Before you call, familiarize yourself with the following:

• Debt/income ratio: The sum of monthly debt obligations (including the prospective mortgage) to monthly gross income. Most lenders look for a debt-to-income ration of 36% or less.
• Housing expense/income ratio: The sum of monthly housing expenses to monthly gross income. Most lenders look for a house expense/income ratio of 28% or less.
• Credit Score: The most common credit score system, called FICO, assigns scores that range from 300 to 950. The higher your credit score, the lower the assumed risk that you will fail to repay the loan.

Some friendly advice
Most people are unaware of their actual credit score. Moreover it is my experience from working with past clients that the perceived credit score is much greater than the actual credit score. One client told me his score was easily over 750; it turned out it was 670. So find out your credit score and get it cleaned today!

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