When looking for a home, how do you figure out how much you can afford?

Question

How do you figure out what price range you should be looking at?

Answer 1

1. First examine your current monthly budget. I would do this in Excel. Take your income and then make a line item for each fixed expense. Contributions to savings and investment accounts should be listed under fixed expenses (since you should be doing that each month automatically). Then subtract fixed costs from income. This is what you have to spend each month on everything else--food, gas, clothes, entertainment, etc. If it doesn't look like enough, then you need to lower your fixed costs.

2. Make another budget in the next column for after you buy a new house. This is a great opportunity to create a whole new budget! Overestimate new fixed costs such as utilities and put in at least 15% for savings (10% for retirement, 5% for other goals). You can play with the numbers, and try putting different amounts in the "mortgage" blank to see what you can reasonably afford to pay. You don't want that payment to exceed 40% of your income, though.

3. Once you have an amount that you're willing to spend each month on a mortgage, remember to subtract property taxes and insurance (and P&I insurance if you're not putting 20% down) from that number. Overestimate those costs. What you have left is what you can afford each month for the actual principal and interest payment. Plug it into a calculator (online if you want) and see what total loan amount that payment would equal with a 30 year fixed rate mortgage (which is what you should be getting).

Answer 2

There are several methods to accomplish this, I say let a professional do it for you, it cost little or nothing for them to do this little chore for you.

All banks just about offer the same products and loan programs with the different qualifications in each of their programs.

Your interest rate is based on your credit score and how well you have paid your consumer debt over time, not by the company that does your loan or even complete the paper work for your mortgage application.

In order to find out the type of loan programs you are qualified for you will have to fill out a loan application, with a mortgage broker, which you can find one in your local telephone book.

He will fill out this application, which takes awhile so grab your favorite beverage and sit down. Once you have completed the application, he will run your credit report which will have your credit scores. These credit scores will determine your interest rate.

The amount of your monthly debt payments you are required to pay as per your credit report and the amount of mortgage you can take on based on your income will determine the amount of house you will be able to purchase.

When you speak with the mortgage broker you will need the following documents to complete the loan application

#1 One month of pay stubs for each person that will be on the mortgage.

#2 Six months bank statements from each bank in which you bank as well as statements from any 401K from you place of employment.

#3 Two years of federal income tax along with the W-2 that match.

Once he has all that he need to do he can then issue you a pre-approval letter so you can purchase a home.

In this pre-approval letter will be the amount of house you are qualified to purchased.

Once he gives you this pre-approval you may now find a real estate agent to find yourself a home or he might have a referral.

Once you have found a home the real estate agent will then prepare a contract for you and the seller to sign.

Your mortgage broker will now order an appraisal to show proof of the property value.

The mortgage broker might ask for additional information or documentation, don't get all up tight this is normal, just supply the information or find the documents needed.

After the appraisal has been completed you will be called by your mortgage broker to sign your loan docs so you can take possession of your new home.

I this has been of some use to you, good luck

"FIGHT ON"

Answer 3

Here's a general rule of thumb: (a) add up all your monthly payments- credit cards, cars, student loans, child/spousal support, anything you pay monthly. Don't include your phone, utilities, or rent. Then (b) take your monthly gross income and divide it in half. Subtract a from b. The remainder is the amount most lenders will allow for the combination of your loan payment, property taxes, and homeowner's insurance payments each month. Basically, no more than half of your gross monthly income should go for your debt and housing payments.

Answer 4

A great deal depends on your personal circumstances, your monthly income, your debt structure, your credit history,what you will feel comfortable having for a house payment including property taxes and fire insurance.

I agree that the best step is to talk to an experienced mortgage banker and get pre-approved for your financing. That way you will have the comfort of knowing what your payment will be and what type of loan program best suits your personal needs and goals.

I'd be happy to answer any other questions you might have. Feel free to email me.

Answer 5

I always heard that your monthly mortgage payment will be roughly 1% of the total price of the house. Look at your budget. If you can afford to pay $2000/month for a mortgage, then you can look at houses around $200,000.

Answer 6

Here's an easy way. If you don't have a bunch of credit card bills. How much do you make in 3 years. Example: If I make $40,000/year I can afford $120,000 worth of house. For 30 years at About 6.5% thats around $750.00/month.

Answer 7

The best thing to do is to get your pre-approval for a loan first and they will let you know how much you qualify for.

Answer 8

Go online, there are so many websites which calculate everything for you. Example, mortgage-x, bankrate.com, etc.