Owning a home is exciting, but it’s common to wonder “How much house can I comfortably afford?” Mortgage affordability is about more than what a lender says you qualify for. It’s about finding a payment that fits your budget, lifestyle and your financial goals.

When people think about being able to afford a home, they often focus on the purchase price of a house. But your monthly payment is more important. It usually includes:

• Principal & Interest – The amount you borrow and cost of borrowing it
• Property Taxes – Based on the property and location
• Insurance (Homeowner’s/Flood) – Protects your home
• Private Mortgage Insurance “PMI”, if applicable – Required on some low-down payment loans
• Homeowner’s Association “HOA” Dues, if applicable – Common for condos or certain neighborhoods

Together, this is often referred to as “PITI” (Principal, Interest, Taxes, and Insurance). A home might seem affordable based on the price alone, but when adding in these costs, the monthly payment can look very different.

Starting the Process

Understanding what you can afford starts with your income. Lenders look at your gross monthly income (before taxes) to estimate how much debt you can comfortably handle. The goal is for the income to be stable and verifiable.

Reviewing your current debts is the next step in determining affordability, as it tells how much of your income is already committed. This includes:

• Car payments
• Student loans
• Credit cards
• Personal loans
• Child support or other obligations

The current debts factor into your debt-to-income ratio (DTI), which compares your monthly debts to your income as a percentage. Having debt doesn’t mean you can’t buy a home; it simply helps determine what monthly payment may be comfortable for you.

Check your Credit Profile

Your credit score isn’t just a number. Your credit report provides information on how you’ve managed payments over time, outstanding balances and your overall borrowing history. This information helps determine the interest rates available to you.

Our credit score reporting tool, Credit Sense, lets you to access, view and manage your credit score, all in one place directly through First eBanc online and mobile banking. This free service makes it easy to keep an eye on your credit history and understand your financial standing. Visit our website here to learn more: https://www.firstcbt.bank/credit-sense.

Interest Rates Play a Big Role

Interest rates play a major role in affordability. Even small changes can noticeably impact your monthly payment. A lower rate may:

• Increase the price range you can shop in
• Lower your monthly payment on the same home
• Reduce how much interest you pay over time

Choosing the right time to lock in a rate can make a significant difference in what you can comfortably afford each month.

Your Down Payment Can Change the Equation

Your lender will need to confirm that you have the funds needed to close. These funds may come from your personal bank accounts, investments or acceptable (and verifiable) gift funds.  Your down payment affects affordability in a few important ways:

• Lower loan amount = lower monthly payment
• May reduce or eliminate mortgage insurance
• Can help you qualify for better loan options

While a 20% down payment is often talked about, many buyers purchase with a lower down payment. Down payment assistance may also be available for eligible homebuyers. It is important to note that in addition to your down payment, lenders also look at your total funds to close, which include closing costs and, in some cases, extra savings (called reserves) that remain after closing.

Plan for Tomorrow

True affordability means choosing a mortgage payment that still feels comfortable, even when life changes. It’s about enjoying your home without putting other goals on hold.

Talking through your full financial picture with Wendy Hoekstra, Vice President of Retail Lending at First Community Bank and Trust, can help you understand your options and choose a loan that fits your budget, lifestyle and your financial goals.

With a pre-approval letter and a clear understanding of what is affordable for you, you can start your home search with confidence. Wendy is happy to guide you through each step and answer any questions along the way. Give her a call at (708) 946-2246 or complete a pre-approval application online at https://firstcbt.lendsmart.ai/getstarted. 

 

About First Community Bank and Trust
First Community Bank and Trust is a privately-owned bank. Established in 1916 First Community Bank and Trust has been serving Beecher, IL, Peotone, IL and the surrounding communities for over 109 years. Our commitment to providing the best banking products and services is matched only by our outstanding customer service. We offer traditional community banking services, including mortgage, consumer, and commercial lending, as well as state of the art electronic banking services.

Press Contact:
Steve Koehn, Senior Vice President
First Community Bank and Trust
(708) 946-2246

 

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