Buying a home is one of the biggest financial purchases a person will make in a lifetime. Don’t go in blind. Knowing these four numbers will help you be better prepared when it comes to finding the home of your dreams.

What are the numbers you need to know?

# 1 How much can you borrow?

Unless you have a large stash of cash, you most likely need to team up with a financial partner in order to purchase a home. You need to know what your buying power is. How much will a lender be willing to allow you to borrow? When you contact a lender, they will run your credit and ask you some questions about your income and assets to give you an idea of how much you can borrow.

#2 What Your Monthly Payment Will Be

Your monthly payment will consist of principal, interest, taxes, insurance, mortgage insurance in some cases and HOA fees if applicable. Know around what the monthly payment might be for a home in your budget and make sure you choose a number you are comfortable with. Remember you don’t have to spend as much as a lender will allow you to borrow. Make sure you choose a number that makes financial sense to you and your family while meeting your needs and allowing you to stay within your financial goals.

How much can you really afford? To determine how much house you can afford, use the 28/36 rule. The 28/36 rule is a tried and true home affordability rule that establishes a baseline for what you can afford to pay every month. Most financial advisors agree that people should spend no more than 28% of their gross monthly income on housing expenses (this includes everything within your home mortgage) and no more than 36% on total debt - this includes housing as well as student loans, car expenses, credit card payments etc. This is also known as your debt-to-income ratio. Calculating your debt to income ratio is easy. Let me show you.

Say you make $75,000 per year ($6,250/month) and owe $1500 in debt month to month. Your debt to income ratio = Monthly Debt ÷ Monthly Income. So:

1,500 ÷ 6,250 = .24 or 24%

Say you want to find out the maximum you should be spending on debt each month. You would multiply your gross income by your target debt-to-income ratio. So $6,250 X .36 = $2,250 or less is your target for monthly debt payments including housing.

3) What You Should Have Saved For A Down Payment

Know around how much money you will need for a down payment. Do you need to put 20% down? Actually no. Most loan programs will require 0-5% down. When you talk to your lender, they will give you an idea of how much you will need. Usually FHA requires 3.5% down on a 30-year fixed-rate home mortgage and is capped at $417,000. Conventional bank loans are often approved with down payments as low as 5% for loans up to $417,000. However, there are upsides to putting 20% down on your home. They are:

You will pay less for your home over time.
You will get a lower interest rate
You are more likely to get your offer chosen in a hot market.
You won’t have to pay mortgage insurance.

4) Closing Costs

Know approximately how much money you will need to bring to closing. Usually, closing costs are around 2-5% of the cost of the home and consist of both property-related costs such as the appraisal, escrow fees, and property taxes, and loan-related fees such as title fees, lender fees, pre-paid interest, loan origination fees, etc. If you are buying a $300,000 home, your closing costs might be between $6,000 - $15,000.

With these four numbers in mind, you will be able to be better prepared when it comes to finding the home of your dreams.

Are you thinking about buying a home? Fill out the form at THIS LINK and I can get you connected with one of my preferred lenders.

You can get my free Ultimate Buyer’s Guide HERE