What Can You Afford to Pay for a House?
Decide how much you can afford for a house before you shop for it, not later. It is a sad fact that most borrowers have no idea how much they can afford to pay for a home and end up wasting their time looking at houses that they find, once they apply for a mortgage, are way out of their price range.
If you understand how lenders determine the mortgage you can afford by examining your income, amount of deposit and total closing costs, you will have a better concept of this. Lenders will also examine your current debt and fixed expenses, since you will have to continue to pay those and they want to make sure you have enough income left to pay the mortgage.
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 consultant who can help you with these calculations.
One of the biggest stumbling blocks to home ownership is the down payment. People don’t routinely save as much as they used to, so often they will not have any sizable balances in savings accounts. No down payment loans are rarely granted today, since they were such a big part of the mortgage problems over the last couple of years.
Assume at least a 10% down payment to buy a home. If the home you are looking for is in the range of $200,000, you will need $20,000 for a down payment and more funds for closing costs. A lender can easily give you an estimate of closing costs.
Five thousand dollars is probably a fair estimate of the amount you will need for closing costs, so be ready to have $25,000 saved up. Now you have to look at what you can afford for a monthly mortgage. There are sites on the internet that can help figure how much you can afford to pay once you enter all income and debt, or just consult with your mortgage professional.
The standard rule of thumb is that your mortgage costs should not exceed 25% of your income. But this does not reflect extraneous credit card debt. They have to make sure you have adequate funds to pay their loan after you have paid for your food, utilities, education and other such expenses. A high credit card debt will mean that you will have that much less available for your basic needs.
Without these additional issues, figure that a monthly income of $6,000 means that you can manage $1,500 in mortgage, taxes and insurance. Now you have some figures in hand to start shopping for a home.
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