Whether you are applying for your first home mortgage or your third, the process is always one filled with anticipation, excitement – and a bit of nervousness, too. For most Americans, a home will be the largest purchase they ever make.
According to the National Association of Home Builders, the average first-time homebuyer stays in their home for about 11 years, and a full half of homebuyers remain in the first and only home they ever purchased.
No wonder we regard a home purchase as a big decision! It absolutely is.
But can you afford it?
How Much Home Can You Afford?
As a general rule, your mortgage payment should make up no more than 25-30% of your gross monthly income.
That means that if you make $2,600 a month and your spouse makes $2,200 a month, the most a financial institution would anticipate you could pay toward a mortgage each month is $1,440. However, everyone’s financial situation is different, and just because you could be approved for a mortgage with a payment of $1,440 a month doesn’t mean that your family could live comfortably if you paid that much.
Additional debts, such as student loans, car loans, and credit cards, should be taken into account when determining how much you can put aside each month.
The easiest way to see how much you can afford is to use this mortgage calculator to estimate your current expenses versus your expenses if you were to take on a mortgage of varying amounts. If your household has variable or non-traditional income sources, this could also affect how you and your financial lender determine what you can afford.
Mortgage Loans and Employment Income
One of the most frequent questions new homebuyers asked is whether or not a self-employed person or someone employed part-time can still qualify for a home loan.
The answer? It depends.
Mercer Savings Bank’s own Trever Bransteter, Senior Vice President of Mortgage Lending, offers further clarification. Your employment status can affect your eligibility in certain situations. For example, it would skew your debt to income ratio if you didn’t have a job or other source of income. But a full-time job is by no means a requirement of a mortgage.
As Bruns explains, “Full time, part time—income is income. Full-time hours will naturally make it easier to qualify for a loan than part-time, but it’s doable. For example, we do have people that work seasonally, meaning they’re off for three months or so every year. But they budget accordingly.”
Mortgage Approval: More Than Just a Number
If you have a unique income situation, your best bet for getting a mortgage is to look closer to home. Community banks like Mercer Savings Bank have very competitive rates, and are convenient to work with because they know your local area, market conditions, and property values.
This personalized advice is something you will not get from a larger banking institution or online lender. As Bruns says, “Being a community bank, we look at the whole picture—not just the credit score. They’re not just a number; they’re a person. Just because their credit might not be the greatest, that doesn’t mean that they can’t borrow. We take extra time to look at other factors that would qualify them.”
Some other advantages of a local bank include:
- Very competitive rates
- More willingness to work with customers who have less than perfect credit scores
- Much easier to contact versus an online lender
Local financial partners will take the time to get to know you so they can answer your questions, suggest alternatives, and help find the perfect loan for you. Your community is their community too!
Learn more about the ins and outs of buying a home in our Mortgage 101: Beginner’s Guide.