Determining How Much You Can Afford to Pay for your Home in Scottsdale

Real estate agent wants you to understand your budget to better target your Scottsdale home search

One of the first things to do before searching for homes in Scottsdale is figuring out how much you can afford. Your budget is a very individual thing that can affect everything from the size of the home to the neighborhoods you look in. Your budget can even affect the type of financing you ultimately choose.

But remember, lenders will examine more than just your income in determining the size of the loan. In the course of this process though you may discover some alternative financing options that can perhaps increase the amount you can afford.

One of the best ways to get a rough estimate of what you can afford is to request your Scottsdale realtor or a lender pre-qualify you for a loan. Different from pre-approval which is a more involved process where a lender agrees in advance to loan you money up to a specified amount, pre-qualification is a basic estimate of what you can afford.

Factors important to lenders and ultimately, your search for homes in Scottsdale

Banks and other lending institutions use several criteria in determining how much money they will want to lend to you. Scottsdale realtors can help you determine each of these and offer tips to help you build a better case to the bank. These factors include:

• Gross (i.e. before taxes) monthly income
• Credit history
• Amount you owe other creditors
• Amount you have available for a down payment
• Type of mortgage you choose (30-year, FHA, etc.)
• Current interest rates
• Two important ratios: debt-to-income and housing expense

These two ratios are the heart of the matter. Using your financial information as a guide, lenders closely examine these ratios to determine the amount you can reasonably afford each month.

Debt-to-income ratio

Is the amount of debt you currently owe to other creditors relative to your monthly income. As a general rule, lenders think no more than 36 percent of your gross monthly income should be going toward other debts like car payments, credit cards, student loans, etc. Some other loan types like Federal Housing Administration (FHA) loans are a little more lenient on this ratio.

Housing expense ratio

The other important ratio is the amount your monthly housing payment is relative to your gross monthly income. Lenders’ ideal range is 28 to 33 percent of your gross monthly income…meaning, your monthly payment amount shouldn’t consume more than 28 to 33 percent of your monthly income.

How much cash you have on-hand to commit to purchasing a home can make a difference in these ratios and their effect on how much you can afford. A 20 percent down payment for example may mean a 33 percent housing expense ratio is okay. But having only 5 percent to put down may mean the lender will observe the stricter 28 percent ratio for example.

Determining how much you can afford is an important first step to finding the right homes in Scottsdale for you to look at. Contact a Scottsdale realtor that can help you locate an affordable home for you and your family today.

Need More Information
On Scottsdale & Phoenix
Real Estate?

Fill out the form below and we will be in touch with you on available listings and information you're looking for.