September 18, 2017
Orion’s brokers are engaged in a wide variety of transactions. And hear plenty of stories. One issue that comes up, on nearly every purchase transaction, is whether the buyer can afford it. Our experienced brokers will tell a client that deciding if you can in fact afford “that house” can be worrisome but it can be answered if you take the time and seek proper advice from a good originator.
Even if your broker has calculated the numbers and feels you can afford it, what matters is that you feel confident you can afford the payment in question. Analyze the payment, the net savings from homeownership that should lead to increased take home pay, your current spending habits, and what you conservatively project your future income and expenses to be.
One important measure of affordability is a simple ratio. The standard limit for debt to income ratios is 45%. It may be a good idea, however, to stay in the range of 38-40% of your gross income for a comfortable cushion. This is especially true for first time homebuyers without the history and experience of managing a household budget for not only payments but repairs and maintenance.
With that said, the regional rental market has been very tight for the past several years, rent has been rising and will likely continue. By purchasing a home today at a payment that is affordable, you are locking in your housing costs for up to 30 years. Waiting to buy until your income increases even 5% can see your housing costs increase through higher home prices and higher interest rates. The house that today has a payment of 35% of your gross income could cost you 38% or more of your gross income in the future.
Our brokers are true experts in evaluating affordability for clients, and we appreciate their judgement and experience.