The Indicators

How to Determine Whether You Can Afford to Buy a House

Rear view of couple looking at new houseWhen buying a house in Tennessee, it’s not a crime to fantasize about living in a luxury estate with a forested backyard, a serene pond, and a private courtyard. In reality, though, your property options are limited to those what kind of mortgage you qualify for. Such realization can be a bummer, but it’s important to know how much you can actually afford before start looking at real estate.

To help narrow your realistic options down, any mortgage lender in Clarksville, Jackson, or Nashville would tell you to consider these three factors the most:

Gross Monthly Income

Lenders would first scrutinize how much money you make every month before taxes and other deductions are taken out. The higher your income, the greater your chances of qualifying for the kind of mortgage you need to buy a particular property.

DTI Ratio

The debt-to-income (DTI) ratio is a computation that determines how much money you have left to pay your debts. You can do the math yourself: Divide the total of your regular expenses by gross monthly income. Take note that most lenders consider 43% the highest DTI when approving home loan applications. To improve your chances, try to make it smaller than 36% before you shop around. Preferably, your would-be mortgage payments should be no more than 28% of your total monthly debts. If your current projection is higher, settle your other debts first.

Down Payment Size

Your down payment helps affect how much your monthly repayments would be and interest you would pay over time. Also, it determines whether you would have to pay for private mortgage insurance for a certain period. Down payment requirements vary from lender to lender, but paying 20% of the total property price upfront is the magic number to avoid when paying for PMI.

Homeownership is perhaps the most elusive American Dream, but it’s attainable with prudence and patience. Take your time to improve your credentials to qualify for the most favorable mortgage and buy the most practical property for your family.