Four Major Influences On Your Home Buying Budget

Finding it impossible to locate a rental in Detroit or other areas of Michigan? Many people are
having the same problem. With the median price of homes in July 2021 in Southeast Michigan being at around $260,000, it’s a good time to shift focus and turn to purchasing your own home. The benefits of owning
your own home are worth the plunge.

While the market is “red hot” here in Detroit, Michigan, the price of a home remains relatively
affordable. The average price per square foot at the time of this article is around $63.

Many worry about financing, but here at, REALTEAM Real Estate, we come alongside you with
our sister company, Range Lending, and find the perfect financing for your situation.

We have four tips to get you started as you begin exploring your budget for your new home. All
situations are at least a little bit different when it comes to the home purchase process. There
are a number of factors that influence your unique situation and the budget requirements for the
home of your dreams. Understanding the factors that work to impact your budget is one critical
step to finding the right future home.

4 Major Influences On Your Home Buying Budget

1. Cash on hand. Having more money on hand positively affects the mortgage options
   available to you. Making, for example, a 20% down payment can significantly decrease
   your monthly mortgage payment and make the process smoother. Having a 20% or
   larger down payment can open up different types of loans as financing options, and
   should increase the prospects for financing, in terms of the sheer number of mortgage
   options available to you. However, don’t sweat it too much if you don’t have 20% to put
   down, as there are other types of financing available with smaller down payment
   requirements.
2. Your income. Your income is critical to determining what you can and cannot afford. Less traditional sources of income can introduce additional complications to the mortgage process. For example, self-employed income is not treated exactly the same as a traditional 9 to 5 job. Without getting too specific about income, we invite you to talk with a qualified mortgage broker or other professional to give you an accurate picture of your unique needs.
3. Your liabilities. Debts and expenses matter a great deal towards your budget. A high income can quickly be reduced by significant monthly expenditures, meaning less cash is available to make a large monthly house payment. Monthly obligations like car payments, credit cards, student loans, and other debt can make a difference on what you can afford. At the end of the day, you need some room left over when you subtract your expenses from your income. Don’t forget to include any funds which were previously dedicated to paying your rent – these can now be redirected to pay your new house payment rather than going to your landlord’s pocket!
4. Your credit score. A credit score is the statistical representation of your ability to repay an obligation in the form of a number landing on a graded scale. It offers a glimpse of your qualifications as a borrower. A healthy credit score indicates a better propensity to pay your debts and looks more appetizing to a potential mortgage lender. Poor credit indicates that the risk for not repaying the mortgage is higher than it may otherwise be, and this can affect interest rates and other terms. Make sure to focus on paying bills in a timely manner and give yourself the best foot forward when it comes time to qualify for financing.

Calculate An Informal Budget

You can do a quick calculation of how much home you can afford. While this will not substitute for professional advice from a qualified mortgage broker, this can give you a ballpark estimate of how much home you can afford.

To begin, first calculate your net income (your income after taxes and pre-tax deductions) or take home pay for your household. Don’t forget to include what your spouse makes if you are married. Next, take a look at your bank accounts and determine what your down payment will be. Also consider the associated costs of owning a home like taxes, HOA fees, insurance, and more.

After that, consider your term duration. Typically this is either 15 or 30 years and will determine how the total amount is divided up. A shorter loan term will generally carry larger payments, while a longer term will spread the balance out over a greater time period and reduce the monthly payment amount.

Lastly, figure out all of your expenses. You need to track the amount of money going out each month in relation to the amount of money coming in (your net income). There are many tools out there that can help with the process, but you can subtract your expenses from your net income to get an idea of how much of a monthly payment you can afford. Again, remember that any money currently going towards a rental will go towards your mortgage payment in the future.

Once you determine a comfortable monthly payment, then you can use available tools (Google even has one available in their search feature) to calculate a monthly payment amount that meets your budget. You can quickly search for ballpark loan interest rates, but keep in mind that the factors above will influence your ultimate rate, which may be higher or lower than many places advertise.

If you feel comfortable with what you have uncovered, then it’s time to speak with a mortgage broker like Range Lending and work with a true real estate professional like those at REALTEAM Real Estate.

Next Step: Pre-Approval

Obtaining pre-approval is a wise move in almost any housing market. First, you are now talking with a professional mortgage broker who can give you a calculated consideration of your budget. Secondly, a pre-approval signals that you are serious in your intent to find a home. Lastly, it can help reinforce an offer on a home, particularly in a competitive real estate market.

Pre-approval is generally good for around 60-90 days, but a significant shift in your financial situation will require a revisit if the situation occurs.

At REALTEAM Real Estate, you are not only working with an experienced hand in the greater Detroit real estate market, but you can also take advantage of their connections with an excellent Mortgage Broker like Range Lending. Ultimately, no single asset is likely worth more to you than your home. We help you safely navigate the home buying process and it’s our job to think of the things that you are not thinking about. We work to make the process and uncomplicated as possible, and are here to answer your questions and guide you right into your next home. Hire your REALTEAM Real Estate agent today, because they are truly part of a real team of real estate experts!