Sunday May 28, 2017

Determine How Much You Can Really Afford

It does not matter what part of the country you reside, many times when house-shopping a good many first time buyers and other home purchasers will gasp at the purchase price.

In fact, many properties have prices ranging in the six figure category.  The question that is asked by the buyer is:  Is it possible to make a purchase in the high five to six figure category?

In order to find out what you can afford the best way to go about it is to view it from all angles.  The following article takes you through the process. (Mortgage Affordability Calculator)

The lending institution will look at your capacity to borrow in the following manner:

He or she will first consider the percent of your annual income (gross) which will go towards making your monthly mortgage payment.

There are four parts to your payment including the principal, the interest, taxes and insurance.  The acronym for the four parts of your payment is also known as PITI.  A way to view PITI is that it should not go beyond twenty-eight percent of what you earn.

Some mortgage lenders however will allow the borrower to go over thirty percent of gross monthly income.

The next area assessed by the lender is the debt to income ratio.  This is calculated by taking a percent of income you have determined will be necessary to pay existing debts.

The debts include revolving credit, the mortgage payment, and child support.  The majority of institutional lenders will suggest your debt to income ratio not go above thirty six percent of your income. In order to calculate it yourself take your gross income by thirty six hundredths and divide by twelve.

The lender then reviews the down payment you have available to make the housing purchase.  A down payment of at minimum twenty percent will help reduce requirements as to insurance.

However, a good majority of mortgage lenders allow purchasers to buy a house with lesser down payments.  The mortgage payment is effected by the down payment you supply as well as debt to income ratio and the house payment.

Many borrowers will put a great deal of their monthly income into their house.  In fact some borrowers allocate so much of their income that little is left over to cover any other expense.

A good many homebuyers believe they should purchase the best house possible and will make the sacrifice of having little money for other items.  Their belief is that over time their income will eventually escalate making the whole scenario not such a burden.

In order to evaluate this line of thought more closely, you’ll need to think about what is important to you from a personal standpoint.  The remainder of the article addresses this aspect.

Although you may be making a relatively good income now you will want to think about the following possible future scenarios with respect to paying your mortgage:

  1. Is your household income based on more than one wage-earner?
  2. Is your employment secure?
  3. Would you be able to readily find a position within your field if you were down-sized?  Could you attain a job that pays what you are making should you become unemployed?
  4. Will you have future expenses such as your child’s college education which you have yet to factor into the equation?  How about your annual vacation—will you be able to travel to a preferred destination each year?  Are you planning to purchase a new vehicle in the offing?
  5. Can you change your mode of living to attain the house of your dreams?  This may mean less time spent shopping and staying within a budget.  Also if there are certain daily or weekly rituals you believe you can’t live without—you may wish to reconsider the style of property or price-range you are looking.

Think of other housing expenses outside of the mortgage of which you’ll be responsible.  There will be maintenance down the road with respect to your appliances, heating and air conditioning, roofing, drive, flooring and painting of the walls.

Regardless of the age of the home you are purchasing—new or old—any of the preceding expenses with respect to maintenance are bound to crop up.  You’d be wise to think about this before you put too much of your total household income toward your mortgage payment.

Don’t forget to factor in utility expenses with regard to total housing cost.  Areas to address include heating payments; electric, sewage and trash removal, water, cable TV and telephone service. The majority of the costs mentioned are standard fare for most property owners.

Condominiums and other planned neighborhoods may assess annual or monthly association fees. The fees may cover maintenance of the exterior of the property including the lawn, removal of snow and communal pool.

Also keep in the back of your mind there is nothing to stop the community’s association from increasing the fees over time.  It is wise to check precisely what the association fee covers with regard to the property you are purchasing.

You will need certain items of décor that blend with the community.  It isn’t surprising to find some homeowners so engrossed with finding the newest property that they have little left over for proper furnishings.

One particular item that will need to be addressed is window treatments and coverings.  You certainly will not want to be without the proper privacy once you are enjoying the advantages of home ownership.

Be discerning about your housing purchase.  Certainly buying a new home may be the greatest expense of your lifetime.  It is preferable before making a purchase to crunch the numbers.

Think about your current lifestyle and then think about whether you will be able to live in your dream home comfortably.  If not you may wish to look at other home price ranges so you may include any unexpected future expenses.

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