How Much Home Can I Afford?
The most important part of the home search process begins with knowing what your needs are and how much you can afford. The amount of home you can afford is typically based on three elements:
1. The loan amount from your bank or mortgage lender.
2. The amount of money you have for closing costs (normally 2-5%) and down payment (normally 5-20%).
3. The amount you can spend on monthly mortgage and interest payments.
One of the first things you should do before you plan on buying a home is talk to a bank or mortgage lender and find out how much money they are willing to loan you (what is known as a pre-approval). The terms and loan amount from your bank or mortgage lender are essentially determined by your credit score, income, cash available, and total debt. A quick and dirty rule to remember is that your housing expense should always be less than 28% of your income. These expenses include PITI: mortgage principal, mortgage interest, property taxes, and insurance. Although these are the essential factors, you have to also remember the costs associated with home maintenance (electric, gas, water, trash) and repairs.
To get started, there are a number of good mortgage calculators that will ammortize a loan so you can find out what your monthly mortgage payments will be. However, consulting with a mortgage lender not only helps you determine exactly how much you can afford, but it is almost always free of charge.
2 Comments:
Talking with a loan officer prior to looking at any properties is the best move you can make. Finding the right loan program for your specific situation can be somewhat time consuming, but it's worth it. After have selected a loan program and become pre-approved, you are off to a great start. Not only will you be looking the right price range, but you will have more leverage for negotiations in the future. Pre-approved buyers are much more appealing than buyers who have not begun thinking about financing. Pre-approved buyers will be confident in their choice and can close more quickly.
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