One of the most important things to decide BEFORE you go shopping for a new home is what you can afford to pay for it. This will save you umpteen hours looking at houses that you should not really be in the market for to begin with.
It is critical to understand what lenders will use to determine what you can afford, such as your total income, how much you are depositing, what the closing costs will be, etc. Lenders will also examine your current debt and fixed expenses, since you will have to continue to pay those and they want to be sure you have enough income left to pay the home loan.
There are some rule of thumb ratios that most lenders use that take into account your income and expenses, debt ratios and closing costs, to determine what you can afford to pay for a home.
You can try to calculate these costs yourself, or you can make it easy on yourself by consulting with a mortgage professional who will do this for you.
The first thing that most folks have an issue with is having enough of a down payment to begin with. People don?t routinely save as much as they used to, so frequently they will not have any decent balances in savings accounts. We can forget about no down payment mortgages now that the credit crunch in the real estate market has forced banks to be stricter about their terms.
A minimum of a 10% deposit will typically be demanded. This means that for an average priced home of $200,000, you will have to have the minimum amount of $20,000 for the deposit, and the additional funds for closing costs. Lenders will be happy to give you an estimate of the closing costs.
A very low assumption would be that you have to make $25,000 available. Now you have to be concerned about what you can afford to pay on 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 loan professional.
The standard rule of thumb is that your mortgae costs should not be more than 25% of your income. Excessive credit card debt will have an effect on your disposable income, however. If you are spending 25% of your income on your home, the rest is (in a perfect world) expected to be spent on utilities, food, entertainment, education and savings. If you are spending too much on credit card debt, your income will be reduced, because you will have less money to devote to the mortgage.
Without these additional issues, you can count that a monthly income of $6,000 means that you can afford to pay $1,500 in mortgage, taxes and insurance. This is at least a jump off point for your shopping trip for a new house.
Tags: home, Insurance, Life Insurance, mortgage, mortgage life insurance, property insurance, real estate