What Mortgage Can I Afford with My Salary?
Whether you are buying a new home or refinancing to take advantage of a lower interest rate, it is important to ask yourself, "What mortgage can I afford?" before signing on the dotted line. Being too optimistic about the size of the mortgage that you can afford can lead to trouble, from late payments to damaged credit or worse. To make sure you can comfortably afford your new mortgage, follow these basic guidelines.
Consider the Total Size of the Loan
In general, your mortgage should not exceed 2 to 2.5 times your gross income. So, if you earn $80,000 a year, the size of the loan should be between $160,000 and $200,000. If you earn $100,000 a year, a home within the range of $200,000 and $250,000 should be easily affordable. Be realistic about your finances and take the time to find the right home or the right mortgage for your needs.
Evaluate Your Outstanding Debts
Lenders will use your debt to measure your ability to repay a new mortgage. Depending on the type of loan and your lender, the debt-to-income ratio will vary. Each debt’s monthly payment is evaluated and compared to your total income. It’s also important to know that not every bill goes towards your debts, it is only items that are reported to your credit report such as a: mortgage, home equity loans, auto loans, student loans, personal loans, and credit cards. Additionally, if you pay child support or spousal alimony, these monthly debts may also be included. Items like cell phone payments and utilities are not included in the debt-to-income ratio.
Maximize Your Down Payment
The more that you can put down up front, the less your mortgage will be. A large down payment can make a significant impact on the total cost of the loan, because each dollar that you put down is a dollar that you will not have to pay interest on. While some loan programs have as little as a 3.5% down payment requirement, it is best to put down at least 20% when possible.
Find the Right Mortgage for Your Needs with CCCU Today
Are you considering buying a new home or refinancing your current loan? Talk to our team at Clark County Credit Union today. We will work closely with you to find the perfect loan for your needs. We strive to help our clients make sound financial decisions, and we are here to help with all your banking needs in the Las Vegas area.
Ready to get started? Call CCCU at 702-228-2228 or contact us online to learn more about our mortgage services and loan programs today.