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The Front Porch Blog

Education on all things homeownership

Discovering Your Buying Power

June 27, 2018 Homebuying

Whether you’re seeking the old-world charm of a rustic chateau or a trendy designer model, you should know what type of home you are eligible to pursue. With good financial sense and the right home loan advice, chances are your dream home may be within your reach. Read more on how you can determine your own buying power and find out how you can increase your chances of qualifying for a home loan.

Look Like a Lender

First things first: Brush up on how your debt affects buying a home. Your assets and obligations define your stance as a serious applicant when you enter an open house. Can you act fast on an offer? Or are you crossing your fingers for your next paycheck to come through? Collect your pay stubs, bank statements, and tax information to review your financial history and credit report BEFORE a mortgage lender does. If you’re worried about a bad score, you should know there are key changes coming to the way credit bureaus view your credit report. If these changes don’t affect you, we offer advice on the best way to structure your saving and spending to improve your buying power.

Scout the Scope

The listing price of a home doesn’t account for the additional costs that go into a purchase. To truly calculate affordability, consider these home-buying factors:

  • 3–20 percent of the home’s value for down payment (private mortgage insurance is required for any less to protect lenders from losses)
  • 5–3 percent of the home’s value for upkeep and repairs
  • 2–5 percent of the home’s value for closing costs such as your application, appraisal, attorney, and inspections for pests and damage
  • 3–5 months of your mortgage to make timely payments

Break Down the Budget

Taxes, insurances, and HOA fees, oh my! Here are the questions to ask yourself when analyzing your potential monthly payments:

  • What is your annual income? This includes any money outside of your gross income.
  • What are your monthly expenses? Beyond the essentials, are you buried by credit card payments, auto payments, etc.? The ratio of income to debt is of particular interest to mortgage lenders.
  • Over how many years can you spread out your mortgage terms? 15? 30? Consider the commitment.
  • What is your ideal home price? What circumstances would tip the scale?
  • What are your expectations for property tax in terms of dollars and percentage? A financial advisor can adjust accordingly to align with your budget.
  • Do you qualify for loans? How many and how much do you qualify for?
  • Your mortgage loan will accumulate interest. What rate are you comfortable with?

Now ask yourself how much you could you afford for just $25 more a month. What about $50? Or even $100? Does this alter your vision for your dream home? You can personalize a variety of budget scenarios with our mortgage calculators, but a Lennar Mortgage Loan Officer can help you crunch the numbers for a mortgage estimate that best fits your financial range. Let’s get started and find out more about how you can find your dream home without breaking the bank.