House hunt with confidence when you know your home affordability
Buying a home is a major life decision that can bring joy and stability to your life. However, before you start looking for your dream home, it is important to determine how affordable your dreams are. Home affordability is the amount of money that you have available to spend on your housing costs. This amount should also enable you to pay for other necessary expenses, and arguably, the lifestyle you want to live.
Here’s a guide to figuring out your home affordability, and will explore a few affordable mortgage programs available in New York and New Jersey.
What is Home Affordability?
Home affordability determines the type of home you can buy and the mortgage you can afford to pay back.
For example, you are an avid gardener and have big plans for your homestead. But you also want to live in a suburban neighborhood with a great school system. If you really want that dream garden, you may need to purchase a smaller house to get all the outdoor space you’ll need. That’s because properties in suburban neighborhoods are more expensive per square foot (though not as expense as homes in the city).
Your home affordability is influenced by several factors, including your income, savings, debt, credit score, and expenses. Knowing your home affordability ensures that you do not end up with more expenses than you can afford.
Failing to pay your mortgage payments can have serious financial consequences, including foreclosure and the loss of your home. In addition to the financial losses, you may tank your credit score. This can affect your ability to secure future loans, leases, and other financing opportunities. It can take years to repair your credit and rebuild your financial situation to where it was before.
How Much House Can I Afford?
Calculating your home affordability is an important step towards avoiding these pitfalls. The first step is to calculate your monthly expenses, including car payments, credit card payments, utilities, groceries, and other bills. The next step is to calculate your monthly income, including your salary, bonuses, and any other sources of income.
Using the ArkHomes budgeting tool, you can get a really good handle on your budget. Our easy-to-use budgeting tool breaks down your budget into major categories and will automatically estimate your Maximum Affordable Payment. Even better, once you save your budget on the site, you can filter your home search within your budget. This way you see only the homes you can afford in the areas you choose.
Once you have calculated your monthly expenses and income, you can determine your debt-to-income ratio (DTI). The DTI ratio is a measure of your ability to repay your mortgage. It is calculated by dividing your monthly debt payments by your monthly income. A DTI ratio between 36% – 43% is the typical range of homeowners in the United States. 36% and lower is considered good and likely makes you eligible for a home loan. More than 43% and you will likely not be approved for a mortgage.
After calculating your DTI ratio, you can figure out the maximum mortgage payment that you can comfortably afford. We call this your Maximum Affordable Payment, or MAP. Looking for homes within your MAP is the right thing to do when you’re ready to buy a home.
An online mortgage calculator can help you estimate your monthly payment. This way you can determine the home price you can afford based on your budget. Scroll down for an easy-to-use mortgage calculator. Or better yet, use the budget tool at Ark Homes and it will automatically show the estimated mortgage cost and total living cost of each home you look at on the site.
Still wondering, “How much home can I really afford?” A financial advisor or mortgage advisor are great resources. They can help you determine how much you can put down and give you a better picture of your home affordability. They may even be able to suggest additional ways to increase the amount of home you can afford.
If homeownership still seems out of reach, don’t be dismayed. Home affordability is a serious concern: 87% of Americans are concerned about the cost of housing. Fortunately, there are several mortgage programs to help people achieve homeownership. If they won’t work for you right now, a good mortgage advisor can put you on the path to home ownership by setting a realistic plan for the near future.
Affordable Mortgage Programs in New York and New Jersey
You may be eligible for affordable mortgage programs designed to help low- and moderate-income families buy a home. These programs offer down payment assistance, low-interest rates, and reduced closing costs to make homeownership more affordable.
The Federal Housing Administration (FHA) also offers affordable mortgage programs to help low- and moderate-income families buy a home. FHA loans have lower down payment requirements and more flexible credit score requirements than conventional loans. However, FHA loans also require mortgage insurance premiums, which can increase your monthly payment.
Eligibility is different for each program, but you will find that generally mortgage assistance programs are looking for:
- a credit score above 620
- reliable annual household income
- prepared to put down a 3-5% down payment.
Live in New York or New Jersey? Here are some affordable mortgage programs you will find.
The HomeFirst Down Payment Assistance is offered both in NYC & NJ. The program provides up to $10,000 in down payment and closing cost assistance to eligible first-time homebuyers.
The State of New York Mortgage Agency (SONYMA) offers several affordable mortgage programs, including the Achieving the Dream program.
You can find a list of more New York mortgage programs from the New York Mortgage Coalition. Each program has its own requirements, but you have nothing to lose by trying!
The New Jersey Housing and Mortgage Finance Agency (NJHMFA) has a state-wide First-Time Homebuyer Mortgage Program. They also provide a mortgage program for retired police and firefighters. You can find out more about these programs here.
A mortgage calculator is a tool that can help you estimate your monthly mortgage payment. It is a great way to get a quick snapshot of your home affordability. This is calculated based on price, down payment, interest rate, and other factors. Keep in mind that interest rates are always fluctuating and purchasing points is an option (Mortgage points allow you to lower your interest rate in exchange for an additional percentage of the loan paid at closing). When you are ready to shop for a home, consider making a detailed budget with a tool like the one at ArkHomes.com. It’s free to use and will absolutely help you find homes that fit your budget and lifestyle.
Owning a house is a major personal and financial milestone. However, struggling to pay the mortgage can make it feel like a burden instead of a blessing. That’s why determining your home affordability is a key consideration when you start your house hunt. Ark Homes will help you figure out your budget and show you the homes you can actually afford.