What Can I afford?
Often times, determining what you can and can’t afford is strictly a personal decision. Your income may allow you to purchase that $500,000 home down the street, but if you want to make that $3,500* payment every month is up to you.
There are several factors that come into play when deciding what you can afford such as your credit score, how much you can put down toward the purchase of the property and what size monthly payment you can afford in proportion to your other monthly obligations. There are no answers that are clearly defined when it comes to these questions. The bank has clearly defined guidelines, but you may not.
If you are planning on purchasing your primary residence and you want a 30 year mortgage, you can probably plan on making a lower down payment (or no down payment at all) if so desired, and still be able to afford your monthly payments. If, on the other hand, you want a 20 or 15 year mortgage so you can pay off your home faster, you are more than likely going to get a better interest rate, but plan on making a larger down payment if you want your monthly payments to be more in line with those of a 30 year mortgage.
As a rule of thumb, you do not want your combined monthly debt (including your mortgage) to be more than 45% of your monthly income. Contact me for a free cost analysis breakdown.
*Above payment is based on a 7.5% interest rate principle and interest only*
