How Much Home Can You Afford?
Understanding the Related Costs of Home Buying
You'll need to think about more than a mortgage payment to determine if you can afford that home. To assure you are purchasing a home within the confines of your budget, you must consider closing costs, taxes, carrying charges, and yearly maintenance requirements as well. How much can you afford?
First calculate the estimated mortgage payment
Several formulas exist to help determine how much a lender will allow a consumer to borrow. One of the more accurate formulas is a front- and back-end ratio. It states that the buyer can afford as much as 28 percent of his or her gross-monthly income toward the monthly mortgage payment, assuming that the consumer's other debt payments (credit cards, car loans, student loans, etc...) are less than or equal to 8 percent of his or her gross-monthly income.
To find out how much you can afford, visit out Mortage Center.
Down Payment and Closing Costs
These terms refer to how much money the buyer will have to pay out of pocket and up-front to purchase a home. Down payment is simple… it refers to the amount of money the buyers needs to invest at closing toward the price of the home. The range on down payments vary from 0%, 3.5%, 10% to 20%. For first-time homebuyers this is great news as when starting out in life their savings might not be high. Several programs are available and relatively easy to qualify for and allow buyers to make down payments of as little as 3.5% percent of the price of the home or less
Closing costs can include attorney fees, home inspection costs, title search fees, bank fees, to name a few. For the sake of estimating, closing costs can range from 1 to 6 percent or more of the value of the home.
Monthly carrying costs
Homes require monthly maintenance. These will vary, but expect to factor in taxes and repairs.
Home ownership comes with the burdens of maintaining your property. While in most homes, this is embedded in the cost of your monthly maintenance, there are still additional costs for when you want to replace a bathroom or kitchen, re-do the floors, add more closets, change light fixtures or add carpeting, etc. Make sure you allow something in your budget for these items. While this appears to be daunting…remember not only will you reap the enjoyment of living in your own home…the value of the home should appreciate over the years.