Figuring out which kind of mortgage you can afford is an important step in purchasing your next home. In this post, we’ll cover the steps needed to find out how much you can afford and run through some of the common mortgage types.

Write out a detailed budget

Before you talk to a lender about a loan, work out your household’s monthly cash flow. Calculate all your monthly income and add up all your monthly expenses. Be sure to prorate the expenses you don’t pay every month. Write down all your typical expenses, including your savings goals, and then subtract all your non-rent or non-mortgage expenses from your total income. This number is roughly how much you have available each month for your mortgage payment.

Conventional or government backed

Once you have an idea of how much you can afford, the next step is determining whether you qualify for a conventional loan or if you will need to choose a government subsidized loan. Subsidized loans, such as FHA loans, are geared towards households with lower income, smaller down payments, or who have never purchased a home before.

Fixed or adjustable rate

There are pros and cons to both fixed-rate and adjustable-rate mortgages, depending on your financial situation and future plans. Fixed-rate loans lock in your interest rate for the life of your loan, usually for a term of 15 or 30 years. Adjustable-rate loans offer a slightly lower rate for 5, 7 or 10 years and then your rate will fluctuate up or down depending on the prime rate.

Jumbo loans

A jumbo mortgage is a non-conforming loan used to purchase homes that are priced above the total loan threshold for your county. In most counties, $548,250 is the cutoff point for when you will need a jumbo loan. In higher-cost areas, the amount goes up to $822,375. If your loan balance will be greater than those amounts, you will need to be able to qualify for a jumbo loan.

Speak to a mortgage broker

Working with a mortgage professional is a great way to simplify the process of figuring out what kind of mortgage you can afford. At Lenderment, we’re here to help. Get in touch and we can discuss your personal situation.

Want to see if you qualify for a lower rate? Take our FREE online pre-approval, and find out in just 60 seconds how much you could be saving!

• Secure, Fast, and Easy
• Does Not Affect Your Credit
• No Obligation