Buyers Must Make the Call on Affordability

While home builders may claim to offer affordable housing, the affordability of a home is actually up to you. Factors such as your credit score, the amount of money set aside for a down payment, the type of loan you qualify for and interest rates should play a part in your decision. Keep in mind that some people’s idea of affordable could be vastly different from your own.

Of course, you may have been approved for a home loan with excellent interest rates and you may be able to drop an impressive down payment, but there are other factors to consider. Are you ready to have a huge financial commitment for the next several decades? Consider other life expenses and emergencies that could alter your perception of "affordable" such as college tuition, medical bills and changes in employment. Any of these factors could take otherwise affordable mortgage payments and make them staggering. Evaluate your lifestyle and expectations for your income before deciding on how much you can afford to pay for a new home. It may not be a good idea to buy more house than you can afford on the basis of a promised promotion.

Understand Your Credit Score Before you Begin

Your credit score will play a huge role in the affordability of a new home. A good or bad credit score can be the determining factor on whether you receive a loan and what kind of interest rate you will be paying. Sometimes, contacting a real estate agent can be an intelligent first step in the process. They often have the experience to give you an idea of whether your credit rating will have a positive or negative impact on your search. If your real estate agent and bank representative feel that your credit score is good enough to complete a loan application, they may also be able to give you an idea of how large a loan you can expect. Once you know the amount of the loan and what kind of monthly mortgage payments to expect, you have a good foundation to base your decision upon.

Consider Using a Mortgage Calculator

Many companies provide free mortgage payment calculators online for you to use. A mortgage calculator takes the mortgage amount, the number of years in the term, and the interest rate of the loan and determines your monthly mortgage payments. Mortgage calculators are excellent tools when you’re trying to figure out how a new home will factor into your budget. Obviously, they should only be used for an estimate. The most reliable source for this kind of information is your bank representative.

Remember, you are your own best counsel when deciding how much house you can afford. Don’t be mislead by unscrupulous or overly optimistic lenders that are willing to provide you with a loan you cannot realistically keep up with. Don’t forget to figure in the potential for increased taxes, utility bills, gasoline and living expenses. You want your new home to be your castle, not your prison