How to Avoid Buying More Home Than You Can Afford

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You want to buy a new home. Now is a great time, as rates are still low compared to other points in history. It also gives you a spot in this world that’s yours to do whatever you want with. Nevertheless, in getting ready, there’s one really big question you want to make sure you answer before moving forward: Just how much house can you really afford?

We’ll go over a couple of different ways to calculate that and how to avoid getting yourself in over your head. If you know how much you can realistically spend, you’ll be able to buy with confidence.

Get Pre-Approved

Before you take a look at what’s on the market in your area, it’s helpful to get a pre-approval letter from Texas Loan Star for your mortgage financing. This accomplishes two goals:

  • You’ll get a real dollar figure that can serve as a solid basis for determining just how much you can afford. Your pre-approval letter represents the maximum amount that the lender can approve you for. It shows real estate agents your offer merits serious consideration because you’ve already taken concrete steps to secure financing from us.
  • When you get pre-approved, we will pull your credit in order to determine the amount of your monthly debt payments. This is then put up against income documentation to get your monthly debt-to-income (DTI) ratio – a measure of how much of your monthly income goes toward paying off bills, including housing, car payments, student and personal loans, as well as credit cards. The maximum DTI depends on the type of loan you’re getting, but this is important because it also determines how high of a house you can afford to have and by extension, the cost of the house you can afford.

Don’t Strain Your Budget

A pre-approval will tell you exactly how much you can afford to spend for any given loan. Still, you may not want to push to the upper limits of that approval.

Leave Room for Emergencies

You never know when a sudden illness or an unexpected job loss could throw your budget into temporary disarray. You’ll want to make sure you leave some room in your budget every month to save for your rainy-day fund.

How much should you make sure you’re saving every month? One strategy is to figure out the cost of everything you absolutely need: food and water, housing, medicine, electricity, etc. After that, take a look at anywhere you might be able to cut back. For example, you can probably get by without some of your subscriptions as well as not subscribing to every sports package on cable TV.

Reserves

We understand life does not always go perfectly. Stuff happens. That’s why one of the lending checks is to make sure your budget isn’t stretched so thin that a temporary life event puts the affordability of your home in jeopardy. For that reason, you have to have reserves in order to qualify for most home loans.

When we measure reserves, we take a look at the assets you have in the bank and determine how long you could continue to make your full mortgage payment in the event of a job loss or other source of financial stress.

Call us today to see what you can be pre-approved for! 713-802-0606 – texasloanstar.com

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