Home Affordability: Things to Consider

Purchasing a new home is a huge investment and is one of the most impactful decisions you will make in your lifetime. So, don’t make the mistake of thinking the list price is only factor you should consider when purchasing a new home. Much more goes into the affordability—from the property taxes to closing costs.

1. Property taxes: Depending on the location of your home, property taxes can cost you thousands.
2. Interest rate: The rate will vary depending on your credit score—the better the score, the lower the interest rate (in most cases).
3. Debt to income ratio: You will want to keep in mind the housing ratio, the percentage of gross income you can apply to the total costs connected with your home (it should be capped at 28%) and the debt to income ration, the percentage of your gross monthly income that is meant for paying liabilities such as mortgages and car payments (it should not exceed 36%).
4. Home insurance:  If you put down less than 20 percent of the home’s total listing price as the down payment, then you will be required to pay private mortgage insurance in addition to regular homeowner’s insurance.
5. Closing costs: Some sellers will take care of this for you, but every house you purchase will have closing costs.

Be sure to factor in every expense in order to determine which home meets your budget’s needs in the end.

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