How Much Home Can You Afford?

When people decide to buy a home, the monthly payment is a crucial factor. That’s why one of the most important questions that potential buyers consider is: How much home can I afford?
Affordability is a combination of home price, interest rate, and down payment. And with rates at historic lows, homebuyers have the opportunity to get more for their money….but if rates go up even a little bit they could miss out.
Here’s a simple formula that drives that point home. In simple terms, every 1 percent increase in home loan rates decreases the buying power of an individual by 10 percent in home price. This means that if you qualify for a home priced at $200,000 today and home loan rates increase 1 percent, the amount you could qualify for would be reduced to approximately $180,000 to maintain the same payment.
If you could benefit from moving to a new home, don’t let this time pass you by. By making a move now before home prices or rates increase, homebuyers can get more for their money and still get the payment they’re comfortable with. And, for those people who are thinking about refinancing, today’s situation provides you with the opportunity to reduce your house payment.

A Bargaining Asset….Most people make the mistake of initiating their quest for a new residence by searching for homes they like. However, the correct place to start is to determine how much you can afford—and that means meeting with a loan officer to get pre-approved for a loan. When you work with your loan officer to get pre-approved, the lender will review your income and assets and the terms of the loan to determine the actual loan amount you will most likely qualify for. This instantly lets you know what your actual budget is.
When you begin home shopping, knowing what you can afford from the outset sets the scope of your home-buying strategy and will help you and your real estate agent better focus your efforts to find the best home for your money.
In a real estate market such as this one, your pre-approval letter becomes an incredibly powerful bargaining tool. While it is generally accepted that the current real estate market is a buyer’s market, home sellers are still being cautious about accepting offers, because so many buyers’ funding can best be described as “tenuous.” The last thing they want is an offer from a seller that doesn’t truly have the necessary funding.
With a pre-approval letter, the seller can have complete confidence that the offer you make will be one they can rely on. That kind of peace of mind can often result in a very happy transaction for buyer and seller alike.
Information courtesy of Jeanne Fenwick-Wall/WJ Bradley Mortgage Capital Corp.