Figuring out just how much home you can afford is an
important aspect of buying a home. Think about this
scenario: You find a home you absolutely love and begin the
whole loan process only to be turned down because you
simply cannot afford it. By figuring out how much house you
can afford beforehand, you can avoid this disappointment
and frustration. Not only do you avoid disappointment and
frustration with the home buying experience, you can also
avoid future financial troubles you might face if a lender
does indeed lend you more money than you can afford.
The main factor you need to consider when looking at home
affordability is your income. We all know the importance of
income, but when it comes to borrowing, lenders want to
know that you can pay your mortgage. At a time when
sub-prime lending has created significant lending issues,
your income is even more important and many lenders may
become stricter about who they lend to because of the
financial issues banks are now having to deal with because
of sub-prime lending. A good rule of thumb when calculating
the amount of home you can afford is to apply the 33% rule.
Essentially, no more than a third of your income should go
towards housing costs. This applies whether you rent or
buy. It is especially important if you are buying a home.
Using the 33% rule, you can calculate just how much home
you can afford. You need to remember, that this is not only
payment on the mortgage, but also on home insurance and
property taxes. For instance, say that your income is $5000
a month. Using the 33% rule, you can afford to pay about
$1,670 a month for your mortgage, home insurance and taxes.
While your income and the actual housing costs are
important factors you must consider, there is also the home
loan itself. There are aspects of the loan that will have a
direct relationship to how much of a house you can afford.
Essentially, your goal in finding a mortgage should be to
get the best interest rate for the long term. The mortgage
rate will depend on many factors, many of which you have
some control over. One of these factors is the number of
points you pay on the mortgage. Points are simply fees you
pay to the lender at the closing of the home loan. Many
lenders will only advertise one loan rate based on a
certain number of points. However, you can ask if there are
other options that will lower your interest rate on the
mortgage. In general, the more points you pay at closing,
the lower the interest rate. This may be a good option for
those who have some cash after the down payment and would
like to lower their overall mortgage payments in the
future. Paying fewer points may be attractive to those who
don't have a lot of cash left over after the down payment.
Be sure to ask any potential lender about their points
schedule.
To summarize, save yourself some disappointment and
frustration down the road. Do a little bit of work in
calculating how much home you can afford before shopping
for a home. Be sure to consider your income, how much you
have saved for a down payment, the amount of debt you have
and the costs of insurance and taxes. By doing a little
work, you will have a good idea as to how much home you may
be able to afford.
----------------------------------------------------
For more information on home affordability and home loans,
go to http://www.creditmanagement101.com/HomeLoans
Find home affordability calculators, debt consolidation
calculators and valuable information that will help you
make good financial decisions when purchasing a home.
The author runs http://www.CreditManagement101.com - a
website dedicated to issues concerning debt, credit and
money management.
No comments:
Post a Comment