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We all seek out that dream house we want to make our home but realistically, you need to be shopping for a home you can afford.

How much can you afford?

You are only allowed to have monthly debts of up to 50% of your total gross monthly income before tax, as a general rule. So, if you take your gross monthly income and divide by two and then subtract your monthly load repayments and debt service, (that is credit card minimum payments, car payment, student loans, alimony and so forth) you arrive at a maximum mortgage repayment amount per month.
 
Sarah B in Litchfield,CT

"When buying a home there are so many choices you have to make, but the most important decision is where to go to get your mortgage. I looked into quite a few companies but I wasnt happy until I found Acorn Home Mortgage Company. They helped me find a realtor, Cheryl R, whom of which I highly recommend- very nice and knowledgeable. Then once I found a home I liked, Acorn Home Mortgage took me thru sample paperwork so I knew exactly what to expect. Not to mention they went thru and explained all the terms that are in a mortgage contract, as some of them are very confusing. Acorn Home Mortgage found me a lawyer, an appraiser, and everything else I needed. I felt like all I had to do was sit back as the Acorn Home Mortgage team did everything for me. It was great and I am very happy in my new home- who would have know you could get into a home within 30 days- thank you Acorn Home Mortgage for all that you have done!"
This is how much money a lender will permit you to allocate towards your housing costs each month. If you have less than one year of payments to go on that car you bought then you can leave that monthly payment out of the equation for most lenders. Most loans with under a year to run can be left out. Each lender has different rules and its our job to know them of course and fit you with the right one. If you are currently a tenant then the rent amount will not be in the calculation because it will go away once you purchase your own home.
So, the amount of mortgage you can afford is directly related to the monthly mortgage repayment amount. This amount is affected by your interest rate and, as a general rule, the lower the total amount of your income that is dedicated to loan repayments, the lower your interest rate will be.

Those magical low low rates you see all around you every day require you to have a very low amount of your total gross income being committed to debt repayments each month.

Yes, having a good credit score is also another very important factor in what is a complex banking equation. For a fixed rate loan, the length of the total mortgage also changes the monthly payment amount, the longer the loan the lower the monthly payments. But the longer the lender has to agree to lend at a fixed rate the higher the interest rate.

Each lender has different rules and its our job to know them of course and fit you with the right one. If you are currently a tenant then the rent amount will not be in the calculation because it will go away once you purchase your own home.

How long will you stay in that house? If you are expecting to want to trade up or down then perhaps a five year fixed rate is enough. This will generally be a lower rate than a thirty year fixed. If you cant get the mortgage amount to fit within the 50% debt to income rule then you might want to pay points (bet you hear that term a lot?) to reduce the interest rate and hence reduce the monthly payments. This is probably the only reason for paying points on the loan so be careful.

Why not contact us, no obligation, and give us some basic information and we'll tell you how much you can comfortably afford to borrow and even provide you with a pre-approval so that you can go out looking for a house if you're ready. We hope you will chose to work with us as we have may lenders with many different products all designed to help us find the right solution for your needs, but you have no obligation. .....take a look at what we did for Sarah and countless others....wed love to help you too.


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