How Much House Can I Afford?
When you're buying a home, mortgage lenders don't look just at your income, assets, and the down payment you have. They look at all of your liabilities and obligations as well, including auto loans, credit card debt, child support, potential property taxes and insurance, and your overall credit rating. Use our new house calculator to determine how much of a mortgage you may be able to obtain.
How Do You Find Suitable Homes in Your Price Range?
When you make the decision to buy a home, it's as if blinders are lifting. As you drive to work, or the store or the gym, you notice all the realtor and FSBO ("For Sale by Owner") signs that are all over town. The prices, the options, the floor plans and everything else can make you dizzy, so refine your wants and needs and what you can live without before you actually start looking. And this is NOT Valentine's Day, so don't fall in love with a particular house.
Be especially careful if you are working with a realtor, as they have a tendency to "up-sell" you into a house that you may love but can't really afford. There's nothing for them to lose by this endeavor, because the higher the house price, the more they make in commissions. Just remember--you will be the one paying the mortgage and the associated bills.Click here for full article
How Much House Can You Afford?
The idea of buying your first home can be intoxicating and intimidating at the same time. You are embarking on a journey down an unfamiliar road, so the first consideration is what you can afford to spend on a house.
Consider this from a couple of different angles:
- How much of a monthly payment can I afford?
- What savings do I have available for a down payment?
- How do I plan to cover other expenses such as the earnest money deposit and closing costs?
Setting Up House
The financial future of most people is dictated by the way they start out as independent adults. If you are going to set up house on your own or with a partner (or know someone who is), then you may find some good advice here.
Establish good financial habits early. They can save you lots of grief and money down the road. More couples break up over financial issues than for any other reason. Good financial habits will go a long way toward providing peace and harmony in your home. The key to developing good financial habits is a sound lifestyle financial plan that will help you achieve your lifestyle goals. Over time, your goals will change--that's okay. A good financial plan will allow you to change your goals as you go along. But remember, they're your goals. Many persons become discontented because they try to achieve someone else's goals. You've heard the expression "keeping up with the Joneses." This refers to trying to achieve someone else's goals. Even if you succeed, you most likely won't be happy. You will only be happy if you achieve your own goals.Click here for full article
- Current combined annual incomeThe gross annual income of you and your spouse (if applicable).
- Monthly child support paymentsThe monthly amount paid for child support.
- Monthly auto paymentsThe total monthly amount paid for automobile loans.
- Monthly credit card paymentsThe total monthly amount paid toward credit cards.
- Monthly association feesThe total monthly amount for association fees.
- Other monthly obligations <br><em>(not including current mortgage payment)</em>Any other monthly obigations.
- Annual interest rate on new mortgageThe interest rate for this home mortgage loan.
- Term of new mortgage The number of years you wish to finance this home mortgage loan.
- Funds available for a down paymentThe amount of cash you have available to use as a down payment.
- Estimated annual property taxesThe annual amount you expect to pay for property taxes.
- Estimated annual homeowner's insuranceThe annual amount you expect to pay for hazard/homeowner's insurance.
- Front-end ratioAlso known as the housing ratio, lenders use this ratio along with the back-end ratio to determine the maximum loan amount. Housing ratio equals combined (principal + interest + taxes + insurance) monthly mortgage payment divided by your gross monthly income. For example, a combined monthly mortgage payment of $1,200 divided by gross monthly income of $4,500 equals a housing ratio of 27%. Use a front-end ratio of 28% for conservative results and as high as 36% for aggressive results (usually requires a excellent credit and a higher down payment).
- Back-end ratioAlso known as the debt ratio, lenders use this ratio along with the front-end ratio to determine the maximum loan amount. Debt ratio equals your combined monthly mortgage payment plus any other monthly debt obligations such as credit cards and alimony divided by your gross monthly income. Use a front-end ratio of 33% for conservative results and as high as 42% for aggressive results (usually requires a excellent credit and a higher down payment).
This information may help you analyze your financial needs. It is based on information and assumptions provided by you regarding your goals, expectations and financial situation. The calculations do not infer that the company assumes any fiduciary duties. The calculations provided should not be construed as financial, legal or tax advice. In addition, such information should not be relied upon as the only source of information. This information is supplied from sources we believe to be reliable but we cannot guarantee its accuracy. Hypothetical illustrations may provide historical or current performance information. Past performance does not guarantee nor indicate future results.