What to Consider Before Buying A House

Money is the first and most obvious consideration. You can buy a property right now if you have the financial means to do so. Even if you didn't pay cash, most experts agree that if you can qualify for a mortgage on a new home, you can finance the purchase. However, you need to be sure of how much you can afford in terms of a mortgage.

The Federal Housing Administration (FHA) uses a 43 per cent debt-to-income (DTI) ratio as a common guideline for mortgage approval. The borrower's ability to make monthly payments is determined by this ratio. Depending on the real estate market and overall economic conditions, some lenders may be more lenient or rigid.

A DTI of 43 per cent indicates that all of your normal loan payments, plus your housing-related expenses (mortgage, mortgage insurance, homeowners association fees, property tax, homeowners insurance, and so on) should not exceed 43 per cent of your monthly gross income.

If your monthly gross income is $4,000, multiply it by 0.43 to get $1,720, which is how much you should spend on debt payments. Assume you already have these monthly responsibilities: A total of $480 is made up of $120 in minimum credit card payments, $240 in car payments, and $120 in student loan instalments. That means you can theoretically take on up to $1,240 in additional debt per month for a mortgage and stay under the maximum DTI. Naturally, having less debt is preferable.

You should also think about the front-end debt-to-income ratio, which compares your income to the monthly debt you'd have if you just paid your mortgage and paid your mortgage insurance.

Lenders typically prefer a ratio of no more than 28%. Even if you have no other responsibilities, if your monthly income is $4,000, you may have difficulty obtaining authorisation for $1,720 in housing charges. Housing costs should be less than $1,120 if you have a front-end DTI of 28%.

If you don't have any other debt, why wouldn't you be able to use the entire debt-to-income ratio? Because lenders dislike people who live on the verge of bankruptcy. You lose your job, your car is totalled, or you are unable to work for a while due to a medical condition. You won't have any wriggle room if your mortgage is 43 per cent of your salary.

The majority of mortgages are for a lengthy time. Remember that those payments might be made every month for the next 30 years. As a result, you should assess your principal source of income's dependability. You should also think about your long-term goals and the chance that your costs would climb over time.

To avoid paying private mortgage insurance, it's advisable to put down 20% of the home's value (PMI). PMI is usually included in your mortgage payments, and for every $100,000 borrowed, it can add $30 to $70 to your monthly payment. 

You may not want to put down 20% on your purchase for a variety of reasons. Perhaps you don't want to live in the house for a long time, have long-term intentions to turn it into an investment property, or don't want to take the risk of putting down that much money.

A $200,000 loan with a 4% fixed interest rate for 30 years would cost $955. You would pay $859 on a $180,000 mortgage with a 4% interest rate over 30 years.

Some won't give you a loan until you put down 5% to 10%.

It's not as vital to be able to buy a new house today as it is to be able to afford one in the long run.