Most people who face credit challenges or in other words have their mortgage applications rejected by conventional lenders jump to the conclusion that they can’t afford a home.

Here at Buyer Investor Match, we don’t use a person’s credit score as a benchmark when offering him or her to buy a home with our owner financing scheme. We use our own criteria to decide if a person is fiscally and mentally ready to commit to home ownership. One of the criteria is to determine whether the person can afford a home. Needless to say, it is very important to decide on your budget before you start looking for a home.

If you are struggling to come up with a budget, here are some tips that you can use:

Your savings for down payment

When deciding your budget, you should first find out the amount of down payment you can comfortably afford. It should be at least 15 percent of the property’s value. So if you are able to put $40,000 down, it means that you should look for a home worth a maximum of $250,000. A high amount of down payment will not only reduce your monthly mortgage payments, but also help you build equity faster.

Your existing income and liabilities

Many people make the costly mistake of deciding their budget for a home based on the projection of their income in the future. It is a wrong approach. You should decide how much you can afford based on your current household income. You should also factor in your existing debts and other liabilities to determine if you will be able to make monthly mortgage payments comfortably.

As a rule of thumb, your monthly mortgage payments should not be more than thirty percent of your monthly income. Even conventional lenders follow this rule. They use a formula, called income-to-value ratio in order to ensure that they are risking their investment by lending you the money.

So let’s say for example your monthly income is $4,000. Your mortgage payment should not be more than $1,000-$1,200.

Closing costs

You should factor in various closing costs when deciding your budget for buying a home. Under our Buyer Investor Match program, we have found that closing costs are typically in the range of + – 4% of the purchase price.

Under an owner financing arrangement, you reimburse the investor for the exact closing costs and pre-paids they pay to acquire the home. So if you are buying a home worth $200,000, the closing costs will be around $8,000.

Some of the closing costs include various types of fees for professional services, title insurance, home ownership insurance, title search fee, escrow fee, home inspection and title transfer fee.

Focus on ‘Must-haves’ than ‘Nice-to-haves’

It sounds great to have a large swimming pool in the backyard of your home, but if you have a tight budget, you should focus more on must-have features. Make a list of the most important features you want your new home to have. You will be able to get a better deal if you know exactly what you are looking for. It will also be easier for you to find a home within your budget.

In conclusion

If you can comfortable afford the down payment, closing costs and monthly mortgage installments, you should definitely go ahead and buy a home, irrespective of your credit score. If you are having a difficult time getting a lender to approve your mortgage application, we can help you find your dream home with owner financing. Interested in knowing more about our program? Just click on the button below to set an appointment with us using our online calculator: