How Much House Can You Actually Afford?

Home affordability is about much more than just how much you can borrow. Your income, credit history, down payment and your employment and residence history all play a part in how much you can borrow, but the amount you can borrow may actually exceed the amount you can comfortably afford. There are many factors that go into determining how much house you can afford. In addition to your monthly Lake of the Ozarks mortgage payments, you'll need to consider the up-front costs of buying a house, the closing costs and any ongoing homeownership expenses.

Personal Considerations

1. Up-Front Home Buying Costs

While your monthly mortgage payment may seem like the best way to determine how much house you can afford, there are other expenses that need to be considered. There are several up-front costs that you will have to pay before you even start making your monthly mortgage payments. These expenses include:

• Mortgage Application Fees - "origination" or "service" fees, which can either be flat fees or can range from 1-2% of the total purchase price. You will also have appraisal, underwriting and credit reporting fees, but those are often worked into the closing costs. 
• Earnest Money - is an initial deposit to be paid to the seller if your offer is accepted, to put weight behind your intention to buy. If your offer is among multiple bids, the earnest money you put down may influence the seller's decision in your favor. 
• Down Payment - Often times, you can get a better mortgage rate by paying a higher down payment. While a 15-20% down payment is ideal, down payments can range anywhere from 0-20% or more of the total cost of the home.

2. Closing Costs

Final closing cost will typically range from 2-4% of the total loan amount. Occasionally, the closing costs can be rolled into the mortgage loan amount, meaning you can pay them off as you make your monthly mortgage payments. Closing costs can often be estimated by the lender up-front and can include:

• Mortgage Application Fees 
• Mortgage Points
• Attorney's Fees
• Inspections and Surveys
• Title Insurance and Title Search 
• Escrow Deposit 
• City Recording Fees

3. Homeownership Expenses

The monthly costs in owning your own home well exceed the amount you're going to be paying on your mortgage. It is important to be informed on all the costs of homeownership before committing to a purchase. Make sure you're taking all these extra costs into account when asking yourself, "How much house can I afford?" These expenses can include:

• Mortgage Insurance
• Home Insurance
• Utilities 
• Repairs
• Property Taxes

Lender Considerations

1. Debt-to-Income Ratio

The first factor that a lender is going to look at to determine how much house you can afford is your debt-to-income ratio. This measurement is used to ensure that you make enough money to not only cover your new mortgage payment, but also all the other monthly debts you're already paying, such as credit card payments, car payments and student loan payments. Generally most lenders don't want this calculation to exceed 36%. 

2. Credit Score

One of the most important factors in securing a home loan at the Lake of the Ozarks is your credit. Your credit score is based on payment history, overall level of debt, length of credit history and types of credit, and applications for new credit. If your credit score falls within an undesirable range or includes unfavorable marks, a lender will be less likely to approve your loan. If you do get approved, you'll likely pay a higher interest rate, resulting in a higher monthly mortgage payment. 

3. Down Payment Requirements

In most cases, purchasing a home requires that you have some cash on hand. How much you will need depends on the type of loan you are getting and can range anywhere from 3.5-20%. The more you put down up-front, the better interest rate you can expect to get. Keep in mind that your down payment doesn't include the closing costs, so you'll need to consider those when deciding how much you can afford to put down.

If you are considering purchasing a new home at the Lake of the Ozarks in the near future, now is the time to start thinking about how much you can afford. First consider all the expenses involved for yourself; consider using an online mortgage calculator. Then come to your Lake of the Ozarks mortgage lender with any questions that you may have. Together we can make an informed decision on how much you can afford with your new home purchase!

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Michael Lasson

Sr. Residential Mortgage Lender

NMLS #: 493712

2265 Bagnell Dam Blvd, Suite B

PO Box 1449

Lake Ozark, MO 65049

Direct:  (573) 746-7211

Cell: (573) 216-7258

Fax:(573) 693-9141

Email:  mlasson@fsbfinancial.com

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.