Purchasing a home is one of the most significant investments you will make in your lifetime. You must take the time to define a budget and carefully evaluate your financial situation before you start looking for your new home.
The first step in calculating how much house you can afford is determining the size of your down payment on the house. The required down payment amount will depend on various factors, including the terms your mortgage lender mandates, the type of mortgage loan you get, and how much money you have saved up.
There are several types of mortgages, including 30-year fixed-rate loans, 15-year fixed-rate loans, and adjustable-rate mortgages, where the interest rate changes after every 3 to 5 years. Talk to your lender about all your options.
Now that you have decided on your down payment and mortgage, the next step in calculating how much house you can afford is to figure out your debt-to-income ratio (DTI). This number is significant because it shows lenders the percentage of your income allocated to debt repayment every month, including your mortgage payment.