It’s a seller’s market. That means home prices are high and the inventory is low. If you’re shopping for a house right now, a seller’s market can spell trouble. You might be tempted to buy a home you don’t really want or even buy a home that you can’t afford. Don’t bust your budget just to own a home.
The problem (and it’s not just a pandemic problem, but one we’ve been faced with for years) with mortgages is the tendency of some lenders to approve you for more of a loan than you can handle. While most lenders will allow you to have a debt-to-income ratio of up to 38 percent (including the mortgage), some lenders will go even further. Remember: Just because you got approved for a mortgage doesn’t mean you can afford it to both buy the house and live there.
The first thing to do is to comb through your budget and see what the maximum amount per month you’d be willing to pay for the mortgage. As USA Today notes, when considering that amount, make sure you’re factoring in fixed and variable expenses, as well as long-term goals and retirement savings. Once you have a max payment number in mind, use an online mortgage calculator to see what kind of loan would fall within your budget. When you know the total loan amount you can afford, you can then calculate how much you can afford for a down payment.
With your numbers in hand, it’s now time to apply for mortgages. Make sure you get the best offer available. Knowing your limits also helps with shopping for a home. You should only search for homes that are within your price range. That will eliminate any temptation to go beyond your means.