Homeownership is a dream for many people. It is a sign of stability, independence, and financial success. However, owning a home is a big financial responsibility, and it is important to determine how much house you can afford before you start house hunting. Here we discuss how to determine how much house you can afford and some tips to help you find your dream home.
Know your budget.
The first step in determining how much house you can afford is to create a budget. Your budget should include all of your monthly income and expenses, such as rent, utilities, transportation, food, and entertainment. It is important to be honest with yourself about your spending habits and make sure you are not overstating your income or underestimating your expenses. Once you have a budget, you can determine how much money you can afford to put towards a monthly mortgage payment.
Consider your debt-to-income ratio.
Your debt-to-income ratio (DTI) is an important factor that lenders use to determine your ability to repay a mortgage. Your DTI is the percentage of your monthly gross income that goes towards paying off debt. This includes credit card debt, car loans, and other monthly debts.
The NMRC Mortgage Underwriting Standards for the formal sector specifies a maximum DTI of 50% for those who earn from N2M and above per month; 40% for those earning N501,000 to N1,9M per month and 33% for those earning up to N500,000.
To calculate your DTI, add up all of your monthly debts and divide them by your monthly gross income. If your DTI is higher than 43%, you may need to pay off some of your debt before you can qualify for a mortgage.
Consider your down payment.
Your down payment is the amount of money you pay upfront when you purchase a home. The larger your down payment, the lower your monthly mortgage payment will be. Most lenders require a down payment of at least 20% of the home’s purchase price. If you can afford to make a larger down payment, you may be able to get a better interest rate on your mortgage.
Other Considerations
Your credit score is another important factor that lenders use to determine your ability to repay a mortgage. Your credit score is a number that represents your creditworthiness based on your credit history. A good credit score can help you get a lower interest rate on your mortgage, which can save you a lot of money over the life of the loan. If you have a low credit score, you may need to work on improving it before you can qualify for a mortgage.
Bottomline: Determining how much house you can afford is an important step in the home buying process. By creating a budget, considering your debt-to-income ratio and credit score, and making a down payment, you can find a home that fits your needs and your budget. Conducting an assessment prior to applying for a mortgage can also help you stay within your budget and make the home buying process easier. With the right planning and preparation, you can achieve your dream of homeownership.
