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Home Affordability

When beginning your home search, you should start out with at least a basic idea of how much you can afford to pay for a home. Not being aware of your price range can lead to lots of wasted time and the possible frustration of setting your sights on a house you won’t be able to afford.

The amount of house you can afford comes down to, in a sense, the terms of the principal mortgage you will be using to pay for the home. Your income will go a long way in determining the size of the loan you can afford. How much it will affect the amount depends on other terms, such as the interest rate, terms, down payment requirements, and allowable expense to income ratio.

Your interest rate and term, coupled with loan amount, will determine monthly payments, which are generally compared with income and other monthly expenses to determine if you can afford a particular loan.

The amount of money you have saved for a down payment can also have a big affect on the size of the home you can afford. Not only do you need a certain percentage for down payment in order to get some loans, a high down payment can eliminate the need for mortgage insurance, further reducing the monthly payments necessary for your loan. Also, higher down payments reduce the loan’s principal, which also reduce monthly payments.

Many calculators are available online to help determine how much house you can afford based on your particular financial situation. It is also useful to note that you should not necessarily purchase a home that is located at the upper range of your affordability. You might be better off leaving yourself some margin for error in the transaction. In other words, just because you can afford to buy a home doesn’t mean you should.

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