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AEM Mortgage Minute with Deanna Daughhetee
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Can You Afford to Buy a Home?
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Wednesday, July 8, 2009
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With interest rates at historical lows and housing prices on the decline, many
people consider purchasing a new home. Taking advantage of the current state of
the housing market is tempting, but how do you know how much home you can
afford?
To determine how much you can afford to spend on a home, there are three questions you should ask yourself:
Ideally, you should get pre-approved with a mortgage lender before you even begin your house-hunting. By obtaining a pre-approval, you will not only know what amount you are qualified for, but it will also put you in a better position to make an offer on a home. Down Payments The days of 100% financing, or borrowing 100% of the cost of the home, are in the past. Most lenders now require 20% down. There are some programs where you may have a lower down payment requirement, but you may have to pay Private Mortgage Insurance (PMI), which then becomes an additional cost to consider in your budget. Can You Afford It? The general rule of thumb is that you spend no more on a home than 2.5 times your annual salary, but this isn’t the only thing to consider. A mortgage payment generally consists of four parts: the principal balance of the mortgage loan, interest, property taxes and property insurance. This is known as PITI and most lenders require the PITI amount be no more than 28% of your gross monthly income. You also have to take into account all of your debts and expenses such as utilities, food, student loans, credit card balances, car payments, etc. Your total monthly debt payments, including your mortgage costs, should not exceed 36% of your gross monthly income. Purchasing a new home can be an overwhelming experience, but with proper planning and guidance from a lending expert, you will be on the right path to home ownership. |
