How Much House Can I Afford? Here's Your Answer.
Our How Much House Can I Afford in Georgia or South Carolina? guide gives you access to the tools and tips you need to figure out your maximum house-hunting budget.
Explore the local home buying scene, the factors to consider when calculating your budget, and find tips for qualifying for an affordable mortgage so you can buy your dream home.
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Table of Contents
- What Determines How Much House I Can Afford?
- Tools to Determine "How Much House Can I Afford?"
- What to Look for Online When Buying a House
- Which Home Loan is Affordable and Right for You?
- Getting Pre-Qualified or Pre-Approved for an Affordable Mortgage is a MUST
- Selecting a Realtor
- Picking a Neighborhood
- Making an Offer - The Art of Negotiation
- Home Inspection/Home Appraisal
For many people, purchasing a home represents the single largest investment of their lives. The process of determining how much house you can afford and qualifying for a mortgage in Georgia or South Carolina can feel like a challenge.
Knowing how much of a home you and your budget can afford requires thorough due diligence. After arriving at a reasonable estimate, you’ll possess a more accurate price range and be able to narrow down your real estate search.
But selecting the right property for your needs is only a fraction of the process. In fact, before selecting the right property, you must navigate the wide range of home loan products available and apply for a mortgage pre-approval. Although the home buying process may feel overwhelming now, the following information provides valuable insight and money saving tips on buying a home in Georgia or South Carolina. It also helps answer the question, “How much house can I afford?”
What Determines How Much House I Can Afford?
From 1980 to 2020, the median and mean price of a single-family home rose year-over-year with the exception of the Great Recession in 2008. But after access to credit was restored and the economy steadied, housing prices continued to rise and owners accrued significant equity. Over the past year, home values have gone up in Georgia by 25.9 percent and in South Carolina by 22.9 percent. Even though home values continue to rise, homebuyers in Georgia and South Carolina still enjoy more affordable home prices than many other states. Median and mean sales prices in both states stand well below national averages. That means homebuyers are getting more bang for their buck in beautiful Georgia and South Carolina. Before wading into the real estate market and applying for a home loan, consider the following strategies to determine how much you can comfortably afford.
- Debt-to-Income Ratio (DTI): Your DTI ratio compares the amount of income that goes towards paying down monthly bills and debts against how much money you earn. To calculate your DTI ratio, add up your total income and subtract debt payments. Lenders will use this figure as a factor when deciding how much mortgage you can afford. Or perhaps more accurately, your ability to pay a monthly installment on a home loan. Lenders typically like a 43 percent DTI or lower when approving a home loan. However, there are lenders who may be willing to make exceptions in some cases.
- Credit Score: A robust credit score can prove a decisive factor in qualifying for an affordable mortgage with favorable terms. People who have an exceptional FICO score of 740 or higher may have access to a variety of mortgage opportunities. But if your credit isn’t that high, there is no need to worry. Even middle-of-the-road scores in the 620-660 range may open the door to an affordable home loan. And reasonable loan products may be accessible to a homebuyer with a score in the 500s. Although higher credit scores help create opportunities for lower interest loans, don’t be discouraged from working with Peach State if you don’t have a perfect score.
- Down Payment: The standard down payment is usually 20 percent or higher. Having this amount of cash to put down provides lenders with enough confidence that borrowers will make timely monthly payments. A 20 percent down payment opens the door to certain low interest home loan products and favorable terms. But it’s essential to understand that homebuyers can secure an affordable mortgage with less than 20 percent down payment.
- Mortgage Interest: For the purpose of buying a single-family residence in Georgia or South Carolina, there are two basic types of mortgage interest programs – fixed-rate and adjustable-rate mortgages (ARMs). Fixed-rate interest mortgages are designed to provide static monthly payments. The mortgage you qualify for will come with a built-in interest rate that does not change over the life of the loan. By contrast, ARMs may change periodically. An ARM home loan usually starts at a set rate for a period of time. As interest rate benchmarks fluctuate over time, your monthly mortgage payment may increase or decrease in conjunction with the market.
- Length of Mortgage: Fixed-rate mortgages generally offer terms ranging from 15 to 30 years. Considering the length of a home loan through the affordability lens helps borrowers make monthly budget and long-term financial decisions. Shorter repayment periods reduce the amount of interest borrowers pay on the life of the loan, but usually results in a higher monthly payment. Longer repayment periods result in lower monthly installments and increases the amount of interest borrowers pay. Consider running the numbers through an online mortgage calculator when deciding the repayment terms that will be best for your budget.
Lenders generally like to see that a borrower has two months of reserve cash on hand to pay the home loan in the event of a shortfall. Although not every lending institution requires two months or more in reserves, it’s wise not to overextend yourself when purchasing a house. Ensuring that you can continue to make the monthly payments in the event of an emergency is vital.
If you are a first time home buyer and are open to money and time-saving tips, review our blog, "5 Mistakes to Avoid as a First Time Home Buyer."
If you are considering moving into a more affordable home offering your monthly budget some relief, review our blog, "Wondering "Should I Refinance My Mortgage?" [Expert Tips Inside]."
Tools to Determine “How Much House Can I Afford?”
First time home buyers tend to focus on getting an affordable mortgage without realizing significant peripheral costs may impact the monthly and overall payment. In order to make an informed decision about how much house you can afford, due diligence tasks you with accounting for these expenses.
- Property Taxes: According to the Tax Foundation, South Carolina ranks among the 10 lowest average property taxes in the country. Georgia runs along the lines of the national average for all 50 states. Although these Southern states don’t place a heavy burden on a residence, property taxes must be considered when buying a house. Many homeowners roll them into mortgage payments to evenly disburse the expense over 12 monthly installments.
- Home Insurance: Lenders are generally required to possess a homeowner’s insurance policy to qualify for a mortgage. These policies must be maintained over the life of the loan to ensure the mortgage will be repaid in the event of a fire or natural disaster. Gather competitive quotes before deciding how much house you can afford. Be sure to check us out – we offer our members home insurance through TruStage™.
- Maintenance: You’ll quickly discover that owning a home requires ongoing maintenance and repair. Regardless of how many minor issues you correct, others will creep up. That’s why budgeting to upgrade appliances, fix plumbing, replace aging electrical wiring, pressure wash siding, and other out-of-pocket expenses is necessary.
- Utilities: The cost of electricity, HVAC, municipal water, sewer, and other utilities, are expenses every homeowner incurs. One way to account for these monthly costs involves reviewing today’s numbers and projecting future costs by adding historic increases.
Depending on the dream home you select, expenses such as association fees, school taxes, and others could come into play. By taking all of the potential costs into account, homebuyers can arrive at reliable estimates by running the numbers through a debt-to-income calculator or home affordability calculator.
For a more in depth look at ways to ensure you don't overspend, review our blog, "How Much Mortgage Can I Afford? 5 Steps to Ensure You Don't Overspend."
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What to Look For Online When Buying a House
A study by the National Association of Realtors indicates 90 percent of homebuyers shop online. As an increasing number of people grow comfortable with online tools and many choosing to relocate to states such as Georgia and South Carolina, that figure will only climb. For those relatively unfamiliar with online real estate searches, the following tips can help you narrow the field and find the affordable home of your dreams.
- Use Multiple Platforms: Online real estate resources such as Zillow, Trulia, Realtor, and For Sale By Owner, rank among the popular platforms used by home shoppers. It’s not uncommon for a property to be listed on multiple websites. Doing so ensures a potential home doesn’t fall through the cracks.
- Select a Location: Location remains a driving factor in single-family home selection. Many of these websites allow users to create narrow or expansive searches. Select a primary location and add a 50-mile radius to review nearby properties. There may even be options to scroll maps highlighting homes in your price range.
- Search Parameters: It’s best to determine how much house you can afford before doing an online search. Then you can use that figure for fields that include minimum and maximum listing prices. These real estate platforms also allow you to narrow searches by square footage, acreage, the number of bedrooms and bathrooms, and more.
- Request Virtual Tour: Savvy real estate agents often include photos and a virtual tour with the online listing. If a home doesn’t have one, that’s not necessarily cause for alarm. Locate the real estate professional’s profile and send an email requesting a video. If the seller’s representative doesn’t have one, you may need to schedule an in-person walk-through.
After narrowing the field to suitable homes, internet users can identify important facts about the house, neighborhood, and community. Some platforms generate statistics about schools, crime rates, the value of your dollar, and tax payments. Using these online resources will help you gain valuable knowledge while reducing the time spent searching for a home in another community.
For more tips on house-hunting in a competitive market, review our blog, "What to Look for When Buying a House in a Hot Market."
Buying a house can feel out of reach, but you may be surprised at the amount of misinformation that exists. To discover the truth, review our blog, "7 Common Misconceptions About Buying a House."
Which Home Loan is Affordable and Right for You?
Perhaps the most complicated aspect of purchasing a home revolves around selecting an affordable mortgage that fits your needs. Lenders offer a variety of programs designed to promote homeownership for people of all walks of life. The federal government implemented policies that are specifically designed to help middle- and low-income families secure an affordable home loan. People who want to stop spending their hard-earned money on rent and buy a house would be well-served to consider the following options and speak with a mortgage professional.
The Federal Housing Administration (FHA) insures mortgages that allow lenders to offer an affordable home loan to low- and middle-income families. FHA Loan programs allow buyers to put less than 20 percent down and qualify with imperfect credit scores. Because FHA-approved lenders need not worry about default rates, they are more confident offering affordable mortgage rates and terms. These opportunities are popular among first time home buyers.
For more tips on if an FHA Loan may be the right mortgage for you, review our blog that offers an in-depth look at FHA Loan pros, cons, and must-know tips to get approved.
Active military personnel, veterans, and surviving spouses can apply for a VA Loan. After receiving a Certificate of Eligibility from the U.S. Department of Veterans Affairs (VA) from the borrower, lenders can offer an affordable mortgage. VA Loans don’t always require a down payment, and the low interest rates and favorable terms are a thank you to those who served.
To discover if you qualify for a VA Loan, review our blog, "4 Ways You Qualify for a VA Loan: Explore The Benefits."
Qualifying for these privately guaranteed loan products requires higher credit scores, down payments, and a solid debt-to-income ratio. Conventional mortgages can offer fixed or adjustable-rate interest that may be more expensive than government-backed counterparts. However, conventional mortgages with the support of Fannie Mae or Freddie Mac may offer more flexibility.
Fixed vs. Variable Home Loans
A fixed mortgage establishes the interest rate at the time the loan is approved. The cost is applied to the monthly payment and remains unchanged for the life of the loan. A variable or adjustable-rate mortgage (ARM) starts with a set interest rate. However, the interest charged against the mortgage principal fluctuates as industry benchmarks rise or fall.
If you are looking to refinance into a better mortgage for your needs, read our blog, "10 Helpful Tips when Refinancing Your Mortgage."
First Time Home Buyer Programs and Grants
The U.S. Department of Housing and Urban Development (HUD) offers assistance in the form of grants and tax breaks to select first time home buyers. Single parents, displaced homemakers, or someone who has not owned a home in the previous three years may qualify for local resources and mortgage support.
In addition to government assistance, Peach State offers a First Time Home Buyer program. The program is geared towards helping those purchasing a home for the first time receive flexible qualification requirements and reduced down payment obligations thereby making affording a home more attainable.
Maximizing your ability to afford a dream home stems from securing an affordable mortgage with favorable interest rates and repayment terms. Matching your credit score, debt-to-income ratio, and financial bandwidth with a suitable home loan product usually requires the help of an experienced mortgage professional. If you’re ready to get pre-approved for a mortgage, or if you need the advice of a trusted expert, please contact Peach State’s Mortgage Team today.
For tips on getting approved for an affordable mortgage, review our blog, "Home Loans: What You Need to Know to Get Approved [10 Item Checklist]."
For tips on what to do and what to avoid when applying for a mortgage, review our blog, "5 Dos & Don'ts - Applying for a Home Loan."
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Getting Pre-Qualified or Pre-Approved for an Affordable Mortgage is a MUST
The ability to identify an affordable home tasks potential buyers with knowing how large a mortgage a lender can offer. The terms “pre-qualification” and “pre-approval” both involve a review of your credit to determine a maximum mortgage limit, but the two concepts are slightly different.
Pre-qualification typically involves a cursory review that results in homebuyers gaining a general idea about their borrowing power. By contrast, pre-approval involves a thorough vetting of your credit history, income, assets and establishes a clearly defined mortgage threshold. A mortgage pre-approval empowers potential homebuyers to make decisive offers knowing they can complete the mortgage paperwork and set a closing date. Pre-approvals usually last for 60-90 days, depending on the lender.
People who enter the real estate market with pre-approval usually enjoy a competitive advantage with sellers. Sellers often prioritize offers knowing a lender is prepared to promptly underwrite a mortgage. When they work with people without this support, sellers risk losing a buyer if the mortgage falls through.
For more factors to keep in mind when searching for the best mortgage lenders, review our blog, "6 Pitfalls to Avoid When Looking for the Best Mortgage Lenders."
Credit Union vs Bank: Which offers the Best Mortgage Lenders & Mortgages?
The differences between a bank and a credit union can be significant when shopping for an affordable mortgage. While both types of lending institutions offer many of the same loan products, interest rates, terms, and fees may be different.
The fundamental difference between credit unions and banks, stems from their overall structure and status. Banks must generate profits for their shareholders. Not-for-profit credit unions operate very differently. Credit unions were created with the purpose of providing cost-effective financial services to their members. A credit union isn’t owned by shareholders, but rather their members. Credit union profits, in excess of expenses, are returned to members in the form of lower loan rates, higher savings rates and lower fees.
When shopping for a home loan or seeking a mortgage pre-approval, compare the cost of charges such as the following.
- Application fees
- Attorney fees
- Courier fees
- Fees for pulling and reviewing credit reports
- Loan origination and processing fees
- Property-related fees
Closing costs can range from as low as 3 percent to more than 6 percent. When choosing the best lender to provide an affordable mortgage, be sure to conduct thorough due diligence. Compare interest rates, terms, plus closing costs and other related charges. It’s not unusual for homebuyers to discover they can save money by working with a local credit union such as Peach State.
For more factors to keep in mind when deciding where you should apply for your mortgage, review our blog, "Credit Union vs Bank: Which Mortgage is Better."
Selecting a Realtor
A real estate agent can work with, or be hired by, either the buyer or seller in a transaction. When searching for the right house for your family in Georgia or South Carolina, many people like to have a realtor who is working to find the right property to fit their needs, versus finding over budget properties geared towards making a larger sale. These are some tips to consider when selecting a realtor.
- Consider the trustworthiness and personality of the realtor
- Find someone familiar with your target neighborhoods
- Check references from previous home buyers and sellers
It’s also important to work with someone who shares your values and handles properties in your price range. Selecting a realtor who sells luxury estates may not be the best choice if you’re looking for a starter home.
Picking a Neighborhood
Real estate professionals talk about location for a good reason. The true value of a home stems from the enjoyment of its occupants. Safety, quality schools, and a quiet area with good neighbors will always be more valuable in your day-to-day life than money. That’s why it’s generally a good idea to drive through the neighborhood and gain a sense of your comfort level. And don’t hesitate to experience what it feels like during rush hour or late in the evening. Choosing your neighborhood and community wisely will have a lasting impact on your happiness in your new home.
For more factors to keep in mind when deciding where you should buy your first home, read our blog, "Buying Your First Home? How to Pick the Best Neighborhood for You!"
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Making an Offer — The Art of Negotiation
Before a potential homebuyer even considers making an offer, a real estate negotiation is already underway. That’s largely because sellers generally list homes slightly above the actual dollar amount they want. Wiggle room exists with the vast majority of homes on the market and savvy buyers can employ strategies to reduce the asking price. The goal for home buyers in any real estate transaction is to pay the lowest amount the seller will take.
Before taking a virtual tour or walk-through, do some homework about the listing. Online research may show previous transactions, and that provides valuable insight into the value and the seller’s potential profit. Tax records also indicate the value and when the municipality plans to reassess the property. The fact that taxes could be going up in the near future may provide leverage. If something comes up that could result in a reduced value or incurred expense, put the issue to work in the negotiations.
Home Inspection/Home Appraisal
Lenders generally cannot provide a mortgage for a property that is underwater. If the appraisal results are lower in value than the asking price or offer, a mortgage will likely be off the table. At this point, a reasonable seller understands a price change is inevitable. Position your offer to meet pre-approval thresholds. If the seller won’t negotiate reasonably or in good faith after the appraisal, move on to another affordable home. Should the seller work with you responsibly, consider moving forward with a home inspection.
After you make a fair offer, the home inspection will likely turn up issues that need to be addressed. Many homes require some level of renovation or repair. Use them to renegotiate the offer rather than allow imperfections or minor structural issues to discourage you. Gather contractor quotes, add the cost of potential overruns, and request a reduction. Home buyers sometimes turn a little profit as a result of this negotiation strategy.
For tips on the right questions to ask the home inspector, review our blog "20 Key Questions to Ask During Your Home Inspection."
We’re Here to Help!
As you can see answering the question of “How Much House Can I Afford” is complicated, but not impossible to determine. By conducting your due diligence and working with the right realtor and mortgage lender, you can streamline the process of finding and affording your dream home.
If you have questions about which mortgage is right for your unique financial situation or how to get a mortgage pre-approval, please contact us. We’re here to help!