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Whats Your Affordability Factor?
Buying a home is a big decision and it's very important to educate and prepare yourself as much as possible in advance. Since buying and financing a home go hand in hand, learning how much you can actually afford is critical.
When it comes time to find your first or next home, it's important to know your affordability factor:
Generally, you'll need a 40% Debt To Income Ratio (DTIR) or better.
Next, try to anticipate future life events in the next five years. Are you planning to get married, start a family, will you need a new car or are elderly parents going to need help? All of these events could raise your DTIR up over 50%.
Plan for the house you can afford TODAY, not a few years from now.
Going through the mortgage application process to obtain a pre-approval can also help you understand how much house you can actually afford. It also places you in a much better position when you're ready to make an offer.
Don't forget your PMI. PMI in the morgage industry stands for Principle, Interest and Mortgage that are generally clumped altoghther. In some states, like NJ, property taxes and insurance are incorporated in their PMI calculation. PMI's are added into your monthly mortgage payment.
Affording a home is easier now with great new programs such as the Fannie Mae Home Ready Program which grants you up to 97% Loan to Value on your purchase. That means instead of forking out 10, 15 or even 20% downpayment, you only need to provide as little as 3% down!
Here's a great video that will help walk you through the process. Ready to get started? Give me a call and I'll stear you in the right direction with some top knotch lenders who have assisted many of my past buyers. Give me a quick ring at 810.588.8543.
Josh Murray is The Broker Owner of Linked Realty/Top Michigan Realty Group, a firm that specializes in all aspects of Residential Real Estate in Metro Detroit. Josh Murray received Hour Detroit's Top ....