As a first-time homebuyer serving in the military, an important question to consider is, “What size home loan can I afford?” Answering this question will help you start budgeting before you begin searching for and selecting neighborhoods to explore, and what size home to look for.
To start, you’ll need to take note of a few key factors such as your potential home’s size, debt-to-income ratio, current and future financial obligations, upkeep, etc. To guide you through the process, AAFMAA Mortgage Services LLC (AMS) has compiled information and best practices as a reference as you start your home purchase journey.
What Size Home Can I Afford?
One of the first things you’ll need to know is your budget. It’s easy to get excited about new amenities and innovations when you start home shopping, but you don’t want to overextend yourself and it's best to stay within budget.
If you don’t have a specific home in mind yet, you can still determine a price range by researching the area you plan to buy in. However, if you do have a specific home in mind, there’s more to consider than just market price. For example, a home’s lot size can impact its appraised value, even if a buyer wouldn't pay more (or less) for it. The appraisal helps determine your loan-to-value (LTV) ratio, which impacts the interest rate for your mortgage.
If the home appraisal comes back lower than the listing price, your mortgage lender will not lend more than the appraised value, which means you would have a higher down payment.
So, to answer the question at hand, you will need to not only look at the number of bedrooms/bathrooms, but at the home square footage and lot size too, as these are all things that will influence your mortgage payments.
Review Your Finances
The most important metric when determining what size home loan you can afford is based on your debt-to-income ratio. Often abbreviated as DTI, this ratio is a good estimate of what size home loan you can afford based on your current income, which is also used by many lenders and financial institutions. You can calculate your own debt-to-income ratio by adding your monthly liabilities (debt payments) and dividing that by your monthly gross income. Many traditional mortgages cap this ratio at 43%, so if your DTI is above 43%, it may be difficult to get a mortgage to fund the home.
Consider Your Future Circumstances and Other Financial Obligations
Remember, a home is a long-term investment. Buying a larger or more expensive home than you really need could cost you in the long run. The maintenance and upkeep of a larger house can be more costly, and you may find yourself overextended in the future.
Sometimes you will be approved for a larger loan than you feel comfortable with — this doesn’t mean you need to use it all. Consider if your investment will still work for you in the future when you have other financial responsibilities, and if you have enough in emergency savings should your income abruptly change.
Try a Home Loan Calculator
With a few simple inputs, this home loan calculator is a quick way to estimate what size home and mortgage you can afford. But remember, these are just quick estimates: They typically do not provide enough depth to base your decision on, but can help provide you with a starting point for your research.
Ask a Mortgage Expert
You can use the data from your home loan calculator to start a conversation with a Military Mortgage Advisor. They’ll be able to answer your specific questions and guide you to more resources to help you determine what size home loan you can afford. Contact us online or call 844-394-4526 to learn more and get a free mortgage assessment today.