That is a question many home-buyers ask themselves when they are in the process of buying a new home. Purchasing a home is one of the most significant investments you will make in your lifetime.
The first step in calculating how much house you can afford is determining the size of your down payment on the house. The required down payment amount will depend on various factors, including the terms your mortgage lender mandates, the type of mortgage loan you get, and how much money you have saved up.
There are several types of mortgages, including 30-year fixed-rate loans, 15-year fixed-rate loans, and adjustable-rate mortgages, where the interest rate changes after every 3 to 5 years. Talk to your lender about all your options.
Now that you have decided on your down payment and mortgage, the next step in calculating how much house you can afford is to figure out your debt-to-income ratio (DTI). This number is significant because it shows lenders the percentage of your income allocated to debt repayment every month, including your mortgage payment.
Another critical part of determining how much house you can afford is calculating how much monthly payment you can afford, which is based on the interest rate on your mortgage. Lenders will usually provide a mortgage at lower interest rates for those with a high credit score.