As a mortgage broker with over ten years experience in the Portland, Oregon real estate lending industry I’ve watched first-time home buyers face an increasingly tough market. These days, with fewer homes within affordable range coming up for sale buyers are finding themselves in competition with developers, house flippers, and investors. The average home value in Portland is $416,700 while the current median household income is $63,850. According to Zillow, this puts only about 60% of the current real estate inventory in the metro area within reach for the ‘average’ home buyer.
The question I get asked most frequently by people and families looking to purchase a home is ‘How much house can I afford?’ My number one goal (after getting you into the mortgage that fits your home-ownership goals, future plans, and current circumstances) is to educate my clients so that they come to the table armed with as much information as possible. Knowledge is power in any real estate transaction; this is especially true for those new to the experience of shopping for and purchasing a home.
How Much Mortgage Can You Afford?
One of the single-most important pieces of information you can have when approaching the purchase of a new home is knowing how much home you can comfortably afford.
Your Income and Debt
To avoid overextending your finances and take on a mortgage you can afford, start by looking at what you can comfortably afford to pay per month. A good rule of thumb is to look for a home that costs between two and four times what you earn in income (after taxes) in a single year.
When calculating your finances, it’s important to take into account everything from your salary to your current debt and other monthly expenses like student loans, credit cards, and utility bills.
Your Credit Score and History
Your current credit score, as well as your credit history, also go into calculating your mortgage package. Just like it pays to manage your debt prior to locking in an interest rate on your home loan, improving your overall credit score ahead of time is a way to mitigate the amount of interest you’re going to pay on your home purchase.
Credit card debt is one of the top issues that buyers find they must address before they’re able to make their first home purchase, especially because lenders always give better interest rates to buyers with low debt. Don’t wait to look into your credit score until you’re ready to shop for a new home – do your homework. Spending a few months cleaning up your debt-to-credit ratio and paying cards off whenever possible can save you thousands of dollars over the life of your home loan.
Your Down Payment
Remember, that your down payment (the amount of money you pay toward the purchase of a home) not only impacts the amount you can safely afford overall, but it also influences the interest rate attached to your home loan. Having more cash to put down will save you interest over the life of your home loan, keeps your monthly mortgage payments lower, and could even make your offer more competitive against potential buyers who bring less cash to the transaction.
A good mortgage broker can help you determine the right amount to put toward a home in the form of a down payment.
Most traditional real estate transactions operate on a 20% down payment model, although with so many different loan options available today, a good broker can help you maximize a smaller down payment in some cases. Still, 20% down offers a good balance because it mitigates your interest rate and makes monthly payments more affordable.
Get Mortgage Information From a Professional
Buying a new house should be exciting and fun, but it is also a major life decision and definitely offers a learning curve for first-time home buyers. For the purpose of helping you begin to calculate what size mortgage you can afford, this blog post aims to cover the very basics. If you have a home price in mind and just want to do some basic math to estimate how much the monthly mortgage payment could be, feel free to use. this quick and easy mortgage calculator. If you’re ready to start the mortgage application process, get pre-approved by filling out this online home loan application and I’ll get in touch directly.
I specialize in guiding new home buyers through the mortgage and home-buying process and would love the opportunity to sit down with you to discuss your home-ownership goals, answer your current questions, and help you determine exactly how much home you can afford. Feel free to drop by my office at 1238 NW Glisan Suite A in Portland’s Pearl District, shoot me an email, or give me a call at (971) 404-9844.