How Much Can You Buy?

Published by cravat | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Shout Outs, Uncategorized

A reader asks “How much can I afford to buy?” I am totally worn out of renting and finally wanted to purchase a house. I have inquired in my bank and they said that I am qualified for $200,000 worth of property but I am quite hesitant if something wrong comes up, I would not be able to afford to have it repaired and my monthly mortgage. Can you help me make sure I would not get in over my head?”

If you have the same questions, you are one of those intelligent first time home buyer; a buyer who clearly thinks way ahead which is definitely a good sign. It is much wiser to think if you could afford it because rushing signing any contract and eventually realizing that you are sinking into a big black hole of debt. Several home buyers over assess how much they simply can pay for.

Percentage of Debt

The first thing you need to check is how much your gross income before taxes and needs to remember that this is how much you earn per month not how much you bring home. What you receive after all the government contributions including taxes is your net income.

Lenders typically use what is defined a front-end-ratio, which is considered as a percentage of your gross monthly rate. This front end ratio indicates the payment a buyer can realistically afford from the point of view of a lender. You may rather choose a lower payment.

The back end ratio shows your new loan payment including all recurring loans. It is also computed on your gross monthly income. The back end is much higher than the front end.

Prices of Home and Affordability

Now that you are somehow familiar with monthly mortgages and your capacity to pay, you can identify and understand how that relates to sales price. You will hear professionals say to be able to pay anywhere in between two to six times your annual income but you know that it is smarter to look at the amount of loan you can avail for that monthly payment. You also need to know that interest rates fluctuates hourly and daily, that means your mortgage depends on it.

Down Payments

Initial Down payment will rely on various aspects. First, how much are you comfortable paying? For a first time buyers, I would suggest to maintain and set aside something and not to completely put every single cent in to a property.

No Down Payment

There are buyers who qualify for a hundred percent financing and your down payment will be zero. Few first time home buyers programs accept borrowers with small available funds provided that all income related requirements are met.

There are still several types of Down payments such as FHA DP, Conventional Loan Down Payments and Closing Costs which you can learn more and probably be an option for payment.

The Comfort Level of Your Payment

As what we are telling you from the beginning, be cautious before plunging into a home investments. Try to save the additional cost you would pay for a loan every month and see how you would do. Convince yourself that you are paying a monthly loan payment, if that figure goes well on your monthly financials then you could probably afford to pay that much for a monthly payment.

If you are comfortable to lessen your borrowing amount which appears on your preapproval loan, then all the more the better. Do not enter into a mistake of taking out a mortgage that will be difficult for you to maintain eventually. Do something you feel that is right for you.

Your dream home can usually wait. You probably do not need to buy the most lavishing home you are entitled to buy. Think about a starter home as your first and concentrate on building your equity and your security and your family.