If you are a serious about purchasing a new home, you should also be serious about finding out how much house you can buy within your budget. It has been an unfortunate situation that many people do not take a hard look at their finances and end up having issues down the line and sometimes being foreclosed upon. If you will take the necessary steps now it will save you from potential heartache down the road.
Using an experienced realtor that has your best interest in mind will help you take a hard look so you know for a fact that buying a house will be a good investment that will payoff down the line. Because money can be a very private issue, I would like to share a few tips that will help you.
1. Knowing how much money you have to put towards a down-payment and closing costs affects almost every aspect of the purchase, including but not limited to:
a. Writing the offer
b. Determining the correct mortgage program
c. The best loan provider for that mortgage program
d. Shopping for homes in the correct price range
2. There is a rule of thumb called the 28/36 Rule. It states that you should have no more than 28% of your gross income (this is income before taxes are deducted) applied to your total mortgage payment and that should include real estate taxes and insurance (PITI). If you are looking at a condo, add in the HOA (Home Owners Association) fees as well to the total. No more than 36% of your gross income should be applied to your mortgage expenses plus your regular consumer debt expenses. These consist of car payments, credit cards, student loans and other installment loans, etc. Do not include utilities, insurance or other monthly installment payments that you cannot pay off.
3. Have at least $100.00 – $500.00 or more ready to pay toward earnest money. This is a one time deposit made in good faith to the home seller to secure the offer to buy the property. This check IS deposited into an escrow account with the seller’s real estate agent’s company and is often forfeited if the buyer decides to withdraw the offer not covered under the contingencies in the contract.
4. The down payment can vary between 3 and 20%, dependent upon the type of loan, and the cost of closing (closing costs) are split between the buyer and seller as spelled out in the contract and can run as little as 3% or as much as 5% of the cost of the house.
5. You will need to know the maximum monthly mortgage payment you can afford. A good loan officer can work with you to determine what you qualify for or what payment amount you’re comfortable with. If you don’t know of anyone, I can send you several people you can call.
Read the 10 helpful steps to home ownership. It will guide you through the home buying process.