Can I afford to buy a house?
Before you do anything else, review your monthly budget and determine what percentage of your income can be put toward housing. When you consider the decision of buying versus renting, be sure to think about:
- Your estimated mortgage payments
- The additional costs of home ownership, including maintenance and property repairs, as well as homeowner's insurance and utilities
- The impact of your monthly mortgage payment on your other financial goals, like education and retirement planning.
- The potential tax benefits of deducting your mortgage interest on your annual tax return. Consult your tax advisor.
How much can I afford to borrow?
How much you can borrow is largely dependent on your personal financial situation and appetite for monthly payments. It is also influenced by how much your lender is willing to approve, given your annual income, credit score and other credit related factors.
Use the following ideas to put together your own evaluation:
- Use the calculator below to estimate your monthly home payment, using a purchase price that reflects the size and location of the properties you're considering.
- Using that number, calculate the percentage of your income that will go toward your monthly home payment.
- Don't forget to include mortgage-related expenses, including property taxes, mortgage insurance and homeowner's insurance. Take a look at our glossary of terms for a detailed explanation of each of these items.
- Look at your estimated payment in relation to your budget. Will you have sufficient funds to cover your other required monthly expenses?
How do interest rates and points work?
A point is equal to 1% of the loan amount. For example, one point on a $100,000 loan is $1,000. Three points equals $3,000. Points are typically used to secure a lower interest rate.
When it comes to points, you have three options:
- Pay no points, in what's called a zero point mortgage
- Pay points at closing to receive a lower interest rate
- Have points paid to you (also called lender credits) and use them to cover a portion of your closing costs
Lenders may offer different interest rates on loans, depending on the number of points you're willing to pay. You'll need to choose the option that's financially right for you.