Are you considering purchasing a home in the New Albany area? If so, you’ve made a great decision. New Albany is one of the most desirable suburbs in the Columbus area. With beautiful homes, outstanding schools, and great dining and shopping options, it’s an excellent place to live. Before you begin exploring New Albany properties, though, it’s important to first answer one essential question: how much home can I afford? The home search cannot begin until you have this question answered. In order to further define and understand this question, consult our tips below:
What is the Housing Ratio?
The housing ratio is the percentage of your gross monthly income that will go to housing related expenses. This will be principally composed of your mortgage payment but things like utilities, insurance, and maintenance costs should also be factored in.
No more than 30 percent of your monthly income should be spent on housing, according to most financial planners. This means, for instance, that you if your monthly paycheck comes to $5,300, you should spend no more than $1,590 on your mortgage payment, utilities, and related expenses.
Total Debt Obligation Ratio
As the name suggests, your total debt obligation ratio encompasses every bill you have to pay on a recurring, monthly basis. From rent to students loans and credit cards to child support, just add it all together. If you’re currently free of any substantial debts, that’s wonderful, but it’s also pretty uncommon these days.
Before taking out a mortgage and purchasing a home, your total debt obligation should come to around 36% or less of your gross monthly income. For many folks, this may mean delaying home ownership for a few more years in order to pay of debts. While this can be frustrating, it will prove to be well worth the sacrifice in the long run.
Defining Down Payment Percentage
While it is possible to secure a mortgage with as little as five percent down, at least 20 percent is highly recommend and is considered fairly standard across the industry. Mortgage providers typically require what’s called private mortgage insurance as a condition of accepting a sub-20% down payment. This insurance adds to the cost of your monthly payment. Unless it’s totally not possible, you should do what it takes to save up 20% before purchasing your new home.
Just as if you were applying for a credit card or bank loan, your credit score is very important when shopping for and negotiating the terms of a mortgage. If there is still some time before you’re planning on moving in to your new home, do what you can to bump up or maintain your score.
Also, keep in mind that the mortgage market is in a constant state of flux. Average rates go up and down all the time. Talk with a qualified professional to make sure you buy at a good time.
While a home is a very exciting purchase and can also be a good investment, it is definitely not for everyone. Before taking the plunge here are three important things you should consider:
- Is my financial situation secure enough to take on a mortgage?
- Am I very sure I want to stay in the same place for at least 5-10 years?
- Are my other debts low enough that a mortgage won’t cripple me financially?
If you can confidently answer “yes” to each of those questions, than home ownership may very well be right for you.