So, you are ready to purchase your first home and want to know how much you should spend? This is a realistic and intelligent question to pose; however, there is obviously no one-size-fits all answer to this inquiry. The scope of the real estate landscape varies dramatically from coast to coast and state to state.
Instead of giving a dollar amount that you should pay for your first home, we will take a look at the various factors that you will need to consider when purchasing your first home.
How much home can you afford? This is the first question that you need to answer. There is a formula that helps you determine the answer to this question. The debt-to-income (DTI) ratio is the formula that lenders use to figure out how much to approve you for.
The DTI is calculated by taking how much you pay out for your monthly bills and dividing that by how much you gross monthly. The lender will then give you a pre-approval letter with a maximum purchase price displayed. You can use a mortgage estimator to determine your approximate monthly payment.
The amount you can afford to pay for is also a significant factor in figuring how much you will pay monthly for your home. The more you are able to pay for your down payment, the more you are able to afford to pay for your home.
The minimum down payment for an investment home is typically ten percent. If you wish to avoid paying mortgage insurance, you will need to pay at least twenty percent. Depending on your credit score, you may also qualify for a special conventional loan with a down payment as low as three percent. Your loan originator will be able to assist you with determining what loan program you qualify for.
There are often vast differences between markets from state to state. A piece of real estate in Ohio can be worth hundreds of thousands more for that same property if it is located in California. It is critical to find out how much the average home price is in your state, as well as your local market.
Local Housing Market Conditions
Your local market conditions are a major determinant of home values. Factors like school district, zoning, and recent values of sold homes in the area, dictate home prices.
The appraised value of a home is largely based on what is referred to as “comparables.” Comparables (or comps) are homes in the surrounding area of the subject property that fit the characteristics of the home you wish to purchase. A real estate agent that is familiar with your area can help you with this process and help you better understand the particulars of your local market.
Hopefully, you are able to see the multi-faceted aspects of purchasing a home. You will need to do your due diligence pertaining to your particular state and local market. You also must consider how much you can personally afford to spend monthly for your mortgage.