The most important consideration when purchasing a home is the amount you’re able to pay based on your budget. While some are able to pay cash for their home, the majority of people borrow money from the bank to finance one.
Before you decide on the target price range of your new house, there are some factors you should consider.
What is the lender willing to let me borrow?
The lender will collect financial information from you in order to determine the amount they will allow you to borrow. You first need to provide information about your annual income from work and investments, and the amount of your monthly expenses. One of the most important pieces of information a borrower provides to a lender is the amount of their down payment.
A larger down payment can help the borrower secure a lower interest rate as well as a lower mortgage insurance payment. And the more often you make payments, weekly, fortnightly, or monthly, the lower your interest costs can be. Interest is important to a buyer because you can afford a more expensive home when your interest rates are lower.
The lender collects all of this information from you and applies their complex formula to determine the highest amount they can lend to you. They will also provide you with an estimated payment based on that amount.
Remember, this figure is the most the bank is willing to lend you, not the amount you have to spend on your new home.