Conventional wisdom suggests that buying a home is a long-term investment and that you should buy as much home as you can possibly afford. It’s possible to build equity over time, but that depends largely on what you pay for a home, how robust your market is, and how long you occupy the home.
To choose the right home, you have to try to see as far into the future as possible:
How long will you likely live in the home?
How large is your family likely to grow?
What activities will you have and what space requirements?
Where do you want to live – near work, near family, in a certain school district?
You should have a fairly good idea of the number of bedrooms, baths and living areas you want as well as other features you want your home to have.
Now it’s time to look at affordability. How much can you buy, and how much home can you get for your money?
The trick with buying a home is getting as much as you can on your wish list without becoming “house poor.” House poor means you can afford your house payments but you can’t afford to do anything else.
That’s why lenders have a standard that they use as a benchmark for prequalifying you as a borrower. This is true whether you’re a first-time home buyer or a millionaire move-up buyer.
To qualify you, lenders use two ratios – income to mortgage debt, and income to total debt.
If you’re carrying credit card debt, student loans, or pay child support, the monthly debt service must be accounted for.
The formula is time-tested, and it’s designed to help you minimize the risk of home buying by making sure you can afford your payments over time.
Qualifying to buy a home is only the first step. You will want to be able to handle whatever comes you way - repairs, rising utilities, remodeling or other updates, and ongoing maintenance.
Talk to your lender and see what you can qualify for before you go shopping for a home. Lock in your rate, so you can calculate your payments and obligations accurately.
If mortgage interest rates go up, that could impact the amount your lender will loan you. You may qualify for a smaller amount, which means buying a smaller home or a home in a less expensive neighborhood.
It’s really about affordability. The more comfortable your payments are, the more likely you are to enjoy your new home.
Excerpt taken from http://www.bhg.com
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