11 Factors to Look At to Determine Affordability
While there are many elements to consider when buying a home for the first time in Lake George, NY (or elsewhere) that will vary from family to family, there are 11 basic factors to take into account when it comes to affordability. Don’t just rely on house affordability calculators – although they can be helpful.
Take ownership of your current financial situation and look at the 11 factors to consider before you make an offer on that house.
The 43% Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, equates to all your monthly payments divided by your gross monthly income. Those monthly payments include credit cards, student loans, rent, and other regular payments. Ideally, your debt shouldn’t equal more than 43% of your gross income.
The 28/36 Rule
Similar to the above, the 28/36 rule dictates that a household shouldn’t spend more than 28% of its gross monthly income on total housing expenses, and no more than 36% on total debt service, which includes housing and other debt like credit cards.
Your Current Credit Score
According to Rocket Mortgage, Quicken Loans, HomeBuyer.com, and others, 620 is the magic minimum number when it comes to credit scores and buying a house. Applicants with 740 or higher credit scores tend to get lower interest rates, but your credit doesn’t have to be perfect to buy a house.
The Closing Costs
Closings costs on average are about 3% to 4% of the home purchase price, but could be as low as 1% or as high as 5%. You will know what the closing costs are for certain before the home purchase is finalized. Home inspections, home insurance, appraisal fees, property taxes, and other fees and inspections fall under the closing costs umbrella.
The Homeownership Costs
Of course, the paying for the house doesn’t end after the deal closes. Potential home buyers need to factor in what the house will continue to cost, so to speak, after you’ve bought it: utilities, maintenance, repairs, and maybe even upgrades you’re planning.
The Down Payment
The down payment is the amount the buyer pays up front, and is typically a percentage of the purchase price. It could be as low as 3% to 6% of the purchase price, or as high as 20%. The bigger the down payment you make, the smaller mortgage payments you’ll have each month.
Your Emergency Fund
An emergency fund is a separate savings or bank account that is used to cover the cost of emergencies; emergencies are unplanned events. Your vehicle needing new tires is not an emergency. Most experts agree that about 3 to 6 months of expenses should make up your emergency fund, and you’ll want one in place before buying a house.
Your Steady Income
Although there is no set rule for how much money you need to be bringing in, you do want to be relying on a steady income, setting aside no more than 31% of your monthly income to the housing payment. Don’t assume raises or promotions will happen when taking into account your income. (And don’t forget to refer back to the debt-to-income ratio).
The Current Market
What does the current housing market look like? What’s the economic outlook? Although the decision to buy a house or not heavily weighs on your personal situation and finances, you can’t completely ignore the current market. Read marketing blogs and publications, and stay on top of what’s happening.
What Season It Is
Again, the time is right for you when it’s right for you to buy a house, but this is another factor you’ll want to put into the mix to consider. A spring or summer market is different from a winter market. In the winter, you’re likely to have fewer options to buy, but will be dealing with serious sellers who want or need to sell their home now.
Moving Costs
Moving itself from one house to another, or from an apartment to a house, is no small expense. It’s also considered to be one of the top most stressful life events humans can go through. Simplify this potential stressor by researching U-Haul or truck rentals, gas between the two locations, and more ahead of time, so these aren’t last-minute, surprise expenses later.
Unfortunately, there is no magic formula to knowing if you can afford to buy a house or not, but taking all of the above into consideration will best position you to make the decision that’s right for you and your family.
Thinking of moving to the Lake George region? Check out what you need to know about Lake George, browse just-listed properties, and then contact me today!
