Your income, credit history, the size of your down payment, and your employment and residence history are all factors in how much you can borrow. Depending on circumstances, the amount you can borrow may exceed the amount you can comfortably afford - so it pays to borrow cautiously.
Some costs associated with buying a home show up before you start making regular mortgage payments. These include:
Application fees include "origination" (or "service") fees, which can be flat fees, or can range from 1 to 2% of total purchase price. There are also appraisal, underwriting and credit reporting fees. These can sometimes be worked into the closing costs.
This is an initial deposit to be paid to the seller if your offer is accepted, to put weight behind your intention to buy. If yours is among multiple bids on a home, the earnest money you put down (also known as a "good faith deposit") may influence the seller's decision-making in your favor.
Final closing costs typically range from 2% to 4% of the total loan amount. Sometimes closing costs can be rolled into the mortgage loan amount, which means you can pay them off as you pay down your mortgage. Closing costs can include:
Don't be intimidated by the list of closing costs. They are all paid at once and many can be estimated by the lender up front.
Owning a home requires financial commitment beyond your monthly mortgage payment, including:
Make sure you're taking all these costs into account when asking yourself, "How much home can I afford?" It's important to be informed on all the costs involved and how much you can afford prior to committing to a home mortgage.
If you're still saving for your first home, here are some additional tips that can help.
Building sound finances and a rock-solid credit rating before you buy will help you afford more home. It can also help you compete better in the market for the house you want, make it easier to handle the up-front costs of buying a home, and make home ownership more fun and easier to manage.
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