Don’t leave affordability to chance and emotion.
You’ve found the home of your dreams. It’s expensive, but it’s beautiful, it has room to grow, and you can just squeak by if you’re careful–maybe.
This is a common situation, and all too frequently, it ends poorly–just look at the number of foreclosures on the market. Buying a home is an emotionally loaded process. Deciding how much home you can afford shouldn’t be.
As a general rule of thumb, a home that costs more than three times your gross income is too much of a stretch. Twice to 2.5 times your gross income is generally a safer bet, though that may be difficult to find in high-priced areas like California or the northeast.
To get a more specific estimate, you’ll need to include credit score, interest rate, closing costs, and taxes into your calculations, and these vary by location, and even day of the week. There are a number of mortgage calculators online, and they can be a great resource for examining different scenarios. To examine your situation in more detail, visit BankRate or another calculator, and input today’ states. If you’re unsure of which loan type to choose, stick with a 30-year fixed rate.
Once you arrive at a monthly payment, compare it to your current rent or mortgage payment. At this point, honesty is critical. Are you able to make your current payments without any problems? Are you falling behind? Banking extra each month? Determine a realistic payment and work backward. If you’re currently renting, you may need to include new types of payments like repairs, but the tax benefits of homeownership should allow you to spend roughly 30 percent more while maintaining the same standard of living–provided you can wait until the end of the year to see your return.
Once you arrive at a monthly payment, compare it to your current rent or mortgage payment. At this point, honesty is critical. Are you able to make your current payments without any problems? Are you falling behind? Banking extra each month? Determine a realistic payment and work backward. If you’re currently renting, you may need to include new types of payments like repairs, but the tax benefits of homeownership should allow you to spend roughly 30 percent more while maintaining the same standard of living–provided you can wait until the end of the year to see your return.
Utilities, student loans, credit card payments, and other monthly debt will also factor into your ability to pay. Lenders will generally cap total monthly debt payments at 41 percent of your gross income, so be sure to pay down those expensive credit cards as much as possible before yo start your search.
No comments:
Post a Comment