Make Sure You Know How Much House You Can Afford
The time to decide how much you can afford to pay for your house is before you start looking for one. It is a sad fact that most borrowers have no idea how much they can afford to pay for a house and end up wasting their time looking at homes that they discover, once they apply for a mortgage, are way out of their price range.
There are a number of items that influence how much you can spend on a home, including household income, the amount of the down payment, and the interest rates and closing costs on home loans in your area. Lenders will also look at your current debt and fixed expenses, since you will have to go on paying such bills and they want to be sure you have enough income left to pay the home loan.
What you can afford for the mortgage will be determined by ratios that are based on determinants such as income and expense, outstanding debt, amount of deposit and closing costs.
You can calculate these factors to within some degree of accuracy, or you can contact a professional mortgage expert who can help you with these calculations.
For most people, affording the deposit is the biggest barrier to purchasing a home. People don?t routinely save as much as they did in the past, so often they will not have any decent balances in savings accounts. Banks are no longer offering the dangerous no down payment mortgages now that credit is tight and they have to be more discriminating.
Assume at least a 10% down payment to buy a house. For a house that costs $200,000, which is an average price today, you will have to have saved at least $20,000, plus whatever funds you may need for closing costs. A lender can supply you with a good faith estimate of your closing costs.
A very low estimate of closing costs would be $5,000, making a total of $25,000. Will you also afford the mortgage payments? You can figure how much you can pay based on salary and current expenses if you go to one of the many calculators found on the net, or you can take a simpler route and speak to a mortgage consultant.
As a rule, lenders do not want to see the entire cost of housing (mortgage, taxes and insurance) more than 25% of your income. However, if you have inflated credit card debt, it will affect this percentage. The balance of your income above 25% should be used for clothing, utilities, savings, education and entertainment. If you have heavy credit card debt that has to be serviced, that will be subtracted from your income when the lender is calculating what you can afford.
If you net $6,000 per month, you can afford a mortgage payment of about $1,500 (25%), barring any other large, standing expenses. This is at least a starting point for a shopping trip for a new house.
Related Posts:
Tags: Affordable Insurance, home, insurance, Life Insurance, mortgage, mortgage life insurance, real estate
