Budget Basics for Modular Home Buyers
How Much Home Can I Afford?
If you are considering building a new modular home, the first step in the process is to do your research. If you are reading this, congratulations, you are exactly where you need to be. Building a new home can be a stressful undertaking, so we’ll try to ease that stress a bit here.
As with any major undertaking, it’s probably best to start with your budget. In this case, how much home can you afford. If you haven’t done so yet, please read our article on What Will My Modular Home Cost
How much home you can afford obviously depends on your income and other sources of revenue you have to make the monthly mortgage payments. Modular homes are built to the same codes as conventionally constructed homes. As such, financing options for modular homes are similar. Three more factors in affordability are location, location, location. While $250,000 might get you a nice four bedroom home in some parts of the country, it gets you a cardboard box in San Francisco. In general, here are items that most lenders will consider when working with you on a mortgage.
Debt to Income
This is simply the ratio of your minimum monthly debt payments divided by your monthly income. For example, if you havetwo or three credit cards with balances, a car payment, and a person loan and all those monthly payments total $1,000 a month, the lender will look at your monthly income to determine your ability to repay the mortgage. If your monthly income is $5,000, your debt to income ratio is $1,000/$5,000 or 20%. In other words, it takes 20% of your current income to pay your current debt obligations, and in this example, excluding your mortgage. If your mortgage payment is expected to be $2,000 a month, that would push your debt to income ratio to $3,000/$5,000 or 60%. That is likely a level that few lenders will be comfortable with. Ideally you want to be no higher than 40%including your mortgage, otherwise it may be difficult to get favorable mortgage terms
How do I know what the monthly payment will be?
This will depend on several factors including the total amount financed, the term of the loan, and the interest rate you pay to borrow the money. Interest rates change and can vary between lenders. The chart below will give you an estimate of the monthly payments based on the interest rates indicted.We are also only showing fixed interest rates. Most lenders offer variable rates as well.