There is a general guideline that most mortgage brokers promote when helping their clients decide exactly how much they can afford to spend on a house. Buyers should always calculate for expenses before taking out handy Denver home loans. The biggest determining factor is the individual’s or the couple’s gross annual income. Gross annual income is the amount earned on a yearly basis before taxes are deducted. Once an individual’s or a couple’s gross annual income is calculated, that number is multiplied by 2.5. This result is the dollar amount that should not be exceeded on the purchase price of a home.
Here are two examples of this calculation:
1) If you want to purchase a home on your own and your gross annual income is $75,000, you should multiply $75,000 x 2.5. This equals $187,500. Therefore, you should purchase a home priced at $187,500 or less.
2) If you want to purchase a home with another person (such as a spouse) and your combined gross annual income is $150,000, you should multiply $150,000 x 2.5. This equals $375,000. Therefore, you should purchase a home priced at $375,000 or less.
It’s important to not get too caught up in the above guideline when determining how much house you can afford. Real home loans in Denver tend to be a lot more lenient, since their rates are adjusted specifically for the borrower. The real deciding factor should be based on how much you feel comfortable spending. Three other important considerations include: 1) the exact amount of cash you have available for a down payment and/or closing costs, 2) the specific dollar amount a mortgage lender is willing to offer you, and 3) the amount of debt you currently have.
All of these factors should be taken into account before deciding how much house you can afford to purchase. There is nothing more disappointing than thinking you can afford a certain amount, finding the house of your dreams, and then suddenly learning that you cannot qualify for the mortgage you need in order to purchase the home. This is precisely why knowing your ballpark numbers at all times is important.
Down Payment – How Much?
All homebuyers are required to put a down payment on a house before it can be purchased. In some situations, a down payment can be a very small percentage of the home’s appraised value. But in most scenarios, it is recommended that home buyers put down at least 20 percent. A 20 percent down payment alleviates the requirement to pay for private mortgage insurance. Additionally, large down payments often result in more favorable mortgage interest rates. If a 20 percent down payment is impossible, this does not necessarily mean you will not qualify for a mortgage. It simply means your mortgage broker will look at specific mortgage loan programs that are better suited for your financial situation.
Prospective home buyers have many options if they should need assistance with down payments. Various mortgage lenders offer, or are involved in, down payment assistance programs that are specifically designed to help individuals who cannot or do not wish to make 20 percent down payments on a home. Your mortgage broker should be able to provide you with advice on whether you qualify for such programs.