What Can You Afford?
What are closing costs?
Closing costs are the fees for services, taxes or interest charges that surround the purchase of a home. They include lawyers fees, title insurance, document fees, interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.
How much will I spend on maintenance expenses?
Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of home ownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.
What can I afford?
Know what you can afford is the first rule of home buying and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 33 percent of their gross income per month on a mortgage payment or more than 38 percent on debts. It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and pre-qualify you for a loan. The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates
Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense which consists of the principal and interest payment on your new home loan as well as property taxes (PIT). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PIT. This ratio should fall between 33 to 38 percent, although some lenders will go higher under certain circumstances.
If you're like most buyers, a home is the most expensive purchase you'll ever make, and you'll probably need some form of financing.
There are many lending institutions that offer a variety of mortgage products. Financing options and rates can vary widely, so it is important to do your research and shop around to ensure you get the mortgage that best meets your needs at the best price.
I would be happy to refer you to some very good mortgage contacts I have or to help you in any other way I can to secure the best possible rate for your home purchase.
Use the mortgage calculator in the Buyers tab to help you determine how much money you qualify to borrow. The results are informal. You will be subject to a credit approval from your financial institution taking into consideration existing debt load, amount of down payment, income and other variables.
This calculator will also help you determine what your mortgage payments will be based on purchase price, interest rate and mortgage term, as well as other factors. The amortization table shows what the interest and principal payments will be over the term of the mortgage.
It is so important to get pre-qualified these days especially with all of the mortgage requirement changes that are happening. Knowledge is power and if you know before you head out to look at homes, what you can truly and comfortably afford, it could save a lot of disappointment down the road.