Buying a house or investing in a property is a big step that has many advantages. Whether you are planning on living in the property or renting it out, it is a goal that a lot of people want to achieve in the future.
However, it can be hard to know if you are ready to take this step now, or you need to wait a little longer to afford one. Taking the below factors into consideration will make you certain that you are financially ready to invest in a property, without going bankrupt or having to cut down on necessary expenses to make ends meet. Read on to learn more.
One of the most important factors you need to calculate in order to find out whether you can afford a property is your income, in specific, your monthly gross income. It is basically any money that is coming to you on a regular basis before any kind of tax deductions are made. The formula to calculate the final income that you will get will differ depending on whether you get paid by the hour, on a yearly basis, or through commissions. Having an idea about how much money you have regularly is going to help you determine whether you can afford the property you have in mind.
Unfortunately, buying a property not only comes with its initial price but also with the taxes that you will need to pay on a yearly basis. These taxes will depend on the size of the property that you are planning to buy. So, before you go ahead with your plans to buy any kind of property, ask about the amount of taxes that will come with the property.
A mortgage is a loan that potential buyers can get to afford their chosen property. Like any other loan, there are some criteria that you need to meet before you can get a mortgage. The first thing is your income which you have calculated beforehand. Basically, most lenders will not approve of a mortgage, except if it constitutes less than twenty-eight percent of your gross monthly income. This of course has a direct effect on the kind of properties you can afford to get. Any mortgage you apply for will also have an interest rate and closing fees that you will need to pay. Unfortunately, if you cannot afford the mortgage you applied for, your property will be repossessed.
4- Size and Price of Property
The size and the price of property can affect your decision if you can afford to buy it or not. Basically, the bigger the property, the more expenses you will be paying over it, including maintenance fees and taxes. Properties have varying prices, and it is unwise to think of buying a house outside your affordability. If possible, limit yourself to those properties within your budget to avoid getting attached to a property you cannot possibly afford. The professionals at Stewart Realty state that you can get great properties within your affordability if you use proper tools and browse the right databases. This is a great way to narrow down your choices before scheduling a property viewing.
If you have any debts, then this will directly affect how you can afford a property. There are different types of debts which may include student loans, personal loans, car loans, medical debts, or alimony. A lender will not approve your application for a mortgage if your debts are more than thirty-six percent of your gross income.
You can easily calculate this yourself if you are aware of your monthly debts. You just need to multiply them by a hundred then divide the product by your gross monthly income. If the percentage of your debt is below the maximum, then you are eligible for a loan. Otherwise, it may be smart to wait until you have paid off your debts completely before considering investing in a property.
Your credit score or credit history can show potential lenders whether you are going to uphold the terms set by the loan or not. It provides information regarding the consistency of your payments for specific debts and your current outstanding expenses. Moreover, your credit score can show your income history, if it is steady or not, and consequently, it will be a deciding factor if you can afford to take on a mortgage to buy a property.
While this is not calculated by lenders, you still need to factor your monthly expenses into your calculations to find out whether you can afford to buy a property or not. Your monthly expenses will include your basic necessities, such as food, water, electricity, healthcare, and childcare if you have children. These expenses are often constant and you cannot cut down on them. So, before buying any property, you need to have a clear-cut budget including your monthly expenses, debts, and mortgages to ensure that you have covered everything without struggling financially.
While getting a mortgage will allow you to buy a property and pay it off over a certain time, having an extra amount of money for your down payment will certainly increase your chances to get a loan. Usually, a down payment is about twenty percent of the total price of the property. However, if you can pay more for your down payment, it will reduce the amount of money you need to borrow to afford the property. And consequently, your monthly mortgage payment will also be lowered.
Evaluating and knowing these different factors can help you decide if you can afford to buy a property now or wait until your financial situation gets better. Buying a property requires serious consideration and contemplation because you do not want to end up with debts and added expenses that you cannot afford to pay. Luckily, with this new knowledge, you are now able to estimate your budget to help you narrow down your options until you find the right property for you.