How Much House Can You Afford?
People some time find themselves buying a property they actually cannot afford during the whole mortgage life time. It is important to check in advance and calculate, which amount of money is needed in order to buy a house you can afford.
Your main purpose then is to find out the most expensive house you can buy given your income and savings. This question is not only for financial stability, this question will help you know your purchase upper limits, so you do not pass hoses you think are too expensive for you, and do not try to buy homes which are way higher than you can afford.
Quick personal mortgage ability check
How much you can afford is a function of two things: How much you can borrow and how much down payment can you handle. Most people can afford a home that costs up to three times their annual household income, if they can make a 20% down payment and have only a moderate amount of other debt.
How much down payment can you afford ?
The down payment – is an easy figure to estimate concerning a mortgage loan, you need to know how much free cash and saving you have and plan to put as down payment. 0% down payment loans are more rare to find and qualify for. Usually a 3% is a minimum request. Most lenders will be more willing to lend you higher sums of money when you show 20% of the mortgage down payments. 20% down payments will save you the need for PMI (private mortgage insurance) freeing even more monthly payback money – which means more mortgage possibilities for you.
In case you already have other debts – like credit card debts, bank money loans still running, lenders will count them as part of your over all ability to pay back, and you will certainly get a smaller mortgage. Try to pay back all debts if you want the chance to afford an bigger home mortgage.
Secondary rental possibilities – When you get a home with a unit you can rent out, you can count the rent you’ll receive as income, lenders will count this extended income and be willing to provide you with a larger home loan.
30-year loans – those long term home loans, usually have a low monthly payments (compared with the same amount payed back at a shorter term), since the monthly payment are lower and more affordable, you can get a higher mortgage (afford more house) when going for the jumbo loans.
Closing costs– since they need to be paid, the money can be deducted from the down payment (lowering the down payment % of the mortgage) or rolled into the mortgage loan, which means paying a higher loan, but getting a bit less money to buy the home you intended.
‘How much house can I afford’ calculator
To arrive at an “affordable” home price, we followed the guidelines of most lenders. We’ve allowed a total debt-to-income ratio of no more than 36 percent. And we have assumed a housing payment-to-income ratio of 28% for our conservative estimate, and 33 percent for the aggressive one.
The other aspects of the money borrowing
Here are some questions to ask yourself before buying a house with money you don’t yet have: Do I actually need THIS house ? Is it the right property for me to buy at this stage in life ? Am I buying this house for the right reasons, or do I wish to impress others or prove something to my self esteem? Do I have any financial safety net ? what is my full asset allocation ? What other important goals do I have in life – study, renovate, travel. Can I afford some unexpected expenses like an emergency teeth medical care, an unwanted car repair, pay a handy man for a leaking water pipe repair job.
Remember a mortgage is a long term loan, it will be part of your life for 20-30 years, so some of the double checks you owe yourself regard the long term aspects as far as you can predict them. One factor is what other savings needs, including personal retirement needs, family plannings, children college you wish to support. A mortgage agreement includes other costs and fees, closing costs, lawyer fees, deed and title costs.
Every mortgage will need a private mortgage insurance (PMI), which you’ll owe if your down payment is less than 20 percent of the purchase price. It averages from $50 to $80 per month.
If you need first time buyer education, try to find a coarse at a place near you. This first time house buyer assistance can be a great help before your first property purchase.
Two usefull tips:
1. Your monthly mortgage payment — including principal, interest, real estate taxes and homeowners insurance — should not be more than 28 percent of your gross monthly income (before taxes). This is your housing expense ratio.
2. Make sure your total monthly debt obligation should not be more than 36 percent of your gross income. Those debts includes the mortgage payment plus other obligations such as car loans, child support and alimony, credit card bills, student loans, condominium association fees. (Note: Government and certain other lenders may be more lenient.) This is your debt-to-income ratio.
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