It’s no secret that buying a home is a big decision and the financial commitment is one to be taken pretty seriously. Your credit score is very important when discussing finances with a lender so you want to do whatever you can to make sure it’s at the highest it can possibly be.

Your debt-to-income ratio compares your income and payments made toward your debt, and is a major factor in the amount you are approved for when it comes to your mortgage. The highest DTI is typically  percent. That means with an income of $50,000 and a 36 percent DTI, you have about $1,500 to spend on a home. With minimal down payment and a low interest rate, you could probably afford a home priced around $200,000. If you made $100,000, you could afford a monthly payment of about $3,000 according to this rule.

Housing expenses also play a factor into how much you can afford.  Your expenses compared to your income also known as the front-end ratio. This means the bank will consider your expenses for the home and divide that by your income. The standard rule for this is 28% or less. For example if you make $75,000 annually, this comes to $6,250 per month. With this calculation, your housing expenses shouldn’t exceed $1,750 each month.

There are plenty of other factors like closing costs and PMI that factor into these costs and that’s why the calculators can help but won’t give you the exact figures. Another thing to consider is your down payment. Of course, if you have a larger down payment, your monthly payment will be lower so you might be able to gain some wiggle room with the ratios depending on what you have to offer as a down payment.

Do I Have Options?

First time home buyers do have options for assistance if they aren’t able to come up with a large down payment. It’s important to look into all options in your area as they may require little or no money down when purchasing a home.

There are a few programs that can be helpful to first time home buyers:

• VA Loans are useful to those members that have served in the military. They are guaranteed by the US Department of Veterans Affairs and allow buyers to put nothing down when purchasing a home.
• USDA Loans are useful to those buyers that want to purchase in rural areas and are financed by the US Department of Agriculture.
• FHA Loans are great for first time home buyers because they allow for very small down payments. As low as 3.5% for borrowers who qualify.

Reach Out Today!

Buying a home is a major decision and discussing your finances can seem intimidating if you’re not sure what you can afford. Whether it’s figuring out a realtor or learning about interest rates, we can help you out!  Don’t hesitate to reach out to the knowledgeable team at North Star Mortgage Network!