subject: Calculating How Much House You Can Afford [print this page] Author: Lokesh Author: Lokesh
How much housing loan can I afford? What is the maximum amount of repayment per month that I can make? What is the maximum value of the house that I can purchase? These are a few very related and pertinent questions which must be going on in the mind of every prospective home buyer. The biggest and the two most influencing factor which determines the value of the house that you can afford include the housing loan amount that a mortgage lender is ready to provide you with and your own contribution towards your home purchase in the form of a down payment. Let us have a look into each of these factors and the manner in which it influences your budget towards house purchase. Your credit score is the largest determinant of the amount of exposure that the mortgage lender is willing to take. The other factors based on which the mortgage lender assess the amount of risk they are willing to take depend upon an individuals monthly income, the current debt that one has on his account, the number of dependants and an estimate of the monthly expenditure that one needs to take care of. In case of an above average credit score, the mortgage lenders would even go up to levels of more than 50% of ones monthly income while calculating the monthly repaying capacity. By & large the maximum home loan amount that the various mortgage lenders would lend you would not vary by much. A healthy credit score would come handy in the form of lower mortgage rate and consequently reduced interest payment. Most financial planners would however suggest that the monthly repayment should be less than half your monthly earnings. They also reckon that one should have adequate savings to take care of loan repayment for no less than 6-8 months. Make sure your credit card limits are available for you to use and not reduced by the amount payable. The amount of loan available to you would be reduced by the amount of loan that you carry or the outstanding credit card due. The other big factor which determines your affordability is your net worth and liquidity at the time of buying a house. Besides an amount of ten to fifteen percent of the value of the house which is expected as contribution from your side by the lender, you can enhance your budget by increasing your own equity in your house. You can certainly plan to enhance your won contribution. Avoid big ticket purchases and ensure you increase your monthly savings to be ready with a sizeable amount at the time of making down payment for your house. It is important to plan for the purchase of your dream house. A well planned and thought out exercise would help you find a better house for yourself. Remember, a house is your biggest asset and would stay with you for the rest of your life.About the Author:
