If you are wondering how much money should I spend on a home mortgage you should use an online detailed mortgage calculator to help guide you or talk to a lender before you start. Many lenders are happy to provide you with information up front even before you start looking at homes.
If you take the online approach, SmartMoney provides a great calculator to help you get an idea of how much house you can afford. The basic rule of thumb is between 28% and 33% of your gross monthly income. Be very careful when using online calculators because there are many factors involved that most don’t include.
However, with that said I personally think there are many other factors involved in how much you should spend on your home mortgage. I would personally take a more conservative approach and suggest staying under the 20% range. There are many factors involved in your personal finances that a lender won’t look into detail. My personal rate is around 15% and sometimes the budget runs tight with gymnastic class, dance lessons, rising fuel costs, eating out and the list grows.
Carefully consider all your expense before you sign on the line.
There are a couple of ways to approach the question “Can I afford to buy a home”? One way is to see it from they eyes of a lender. Most lenders agree on the following guidelines:
- Your debt-to-income ration can be no more than 36%
- A housing payment-to-income ration of no more than 33%, preferably around 28%
- Good Credit history
- Required Down payment or around 5%
If you meet all of those guidelines then you will have a good shot at getting a home loan from a lender.
However from your own personal financial situation you may get a different answer. From my own personal experience most lenders will offer to lend you more money than you can really afford. Lenders don’t factor other spending habits into the equation such as entertainment budgets, giving to charities, medical expenses and many other budgeted expenses. They also do not factor in future expenses such as retirement, college, weddings, etc.
Additional expenses will include possible home improvements you want to make once you move into your home. Paint, blinds, new carpet and an extensive list of improvement will probably cross your mind.
Before you decide how much money you spend on buying a home you should do a detailed budget analysis. Find out exactly how much money you are spending each month and how much you are saving. Don’t forget to include all of you and your spouses’ income as well as all your expenses. Also, include room for other future expenses that I mentioned earlier. Once you find your target amount find a good mortgage calculator online that will tell you how much house you can afford.
Once you have all these numbers calculated give it a test run. For the next three months pretend like you have purchased your home. Instead of actually paying the house payment put this money into savings. Not only will it inform you that you can afford a house, but it will give you additional money to pay down on the home or to purchase those possible improvements once you move into your new home.
So, if you are wondering if you can afford to buy a home use the lender guidelines as a starting point, follow up with a detailed personal budget analysis, do a test run and finish off with even more research.
Some of the most commonly asked mortgage questions.
When it comes to buying a house you want to ensure you follow all the rules and do your homework. Buying a car may be a big financial decision however, for the average person, signing your name on a mortgage will probably be the biggest financial decision you will ever make. Below are a list of the most common questions you should know the answer to before you sign the mountain of paperwork. I am going to start this series of posts and over the next several months answer each of these mortgage questions.
- Can I afford to buy a home?
- How much money should I spend on a home mortgage?
- What are the differences between mortgage pre-qualification, pre-approval and final loan approval?
- What first-time buyer programs are available?
- What types of mortgages are available and which should I choose?
- Can I use my IRA retirement funds as a down payment on a home?
- Should I pay points on my mortgage?
- I have poor credit are there still options for a mortgage?
- What are front and back ratios?
- Is it still possible to get a loan with no money down?
- What is PMI (Private Mortgage Insurance? Why do I have to pay it?
- I know it used to be simple to get a mortgage? Is it still that easy?
- Can I take out a second mortgage and use that as a down payment for the first?
- Should I pay extra on my mortgage each month?
- Does it matter how long I have been employed? Will this effect my chances of getting a mortgage?
Once I have answered all these mortgage questions I will open the post up for comments. You can ask your own mortgage related questions and I or members of the blog will give the best answer we can. Please note I am not a professional or have any qualifications in this field, everything you read here is my personal opinion.
The mortgage crisis has hit the United States hard. Record number of foreclosures have devastated cities and towns all across America. Many Americans find themselves owing more on their homes than they appraise for and thousands have decided to just walk away. The mortgage crisis however extends further than just the banks, mortgage companies and home owners.
Internet Outsider informs us that not even one of the most successful companies of the decade is immune to the mortgage crisis. In their article “Google Not “Immune” to Mortgage Crisis” The Internet Outsider explains that Google has taken a beating from mortgage-related advertising revenue. Internet advertising is Google’s big money maker and with the mortgage crisis still at hand Google is definately feeling the pinch from advertisers.
Many of the lending instutions are getting out of the mortgage business all together or drastically reducing their advertising budgets. Google also worries that this could also produce a chain reaction to other industries as well. Contractors, home-supply retailers, construction companies and broader financial services companies could soon follow the downward spiral.
If drastic actions are taken soon to fix the mortgage crisis the financial world as we know it could soon see major changes.
We all hate paying taxes, but unfortunately it’s a necessary evil of our society. In order for state and local goverments to function properly our tax money is needed. I’m not sure they really need as much as they take, but that’s another debate and another blog. Paying taxes obviously isn’t fun so you need to take advantage of any way you can to reduce your tax bill.
One way to reduce your tax obligation is to claim the interest on your home mortgage. Peak Personal Finance gives a great, breif explination of the tax advantage of having a mortgage. Not only can you deduct your monthly interest paid on your home mortgage but you can also deduct points paid at closing.
If you are having trouble deciding if you should buy or rent a home you may want to consider all the advantages of owining your own home and give Peak Personal Finance a quick visit and learn more about the tax advantages of having a mortgage.
A record number of foreclosures have hit the banks in the past couple of years and just when the banks start to see relief more foreclosures pile up everyday. Number 8 on the list of highest foreclosure rates in the United States is Michigan. Today I read an article from Michigan Mortgage Attorney . They ask the question “Should I stop Paying my mortgage?”
It’s very tempting to stop paying your mortgage especially if you are in the situation that many Michigan home owners are in today. House values in the United States have plummeted in the past two years. Many home owners owe much more than their house is actually worth and there is no relief in the housing value market in sight. Many home owners owe 2 or 3 times more than their house is actually worth. It seems like they are fighting a losing battle with their mortgage. Should they just walk away?
I agree with MichiganMortgageAttorney.com in the fact that I don’t they it’s the right thing to do. If you can pay for your mortgage then you have an obligation to fulfil the promise you made to the bank or mortgage company. When you purchased your home you signed a legal contract stating that you would pay x amount of dollars over then next x amount of years. The bank or mortgage company in turn trusted you to fulfil your obligation.
I do however realize that times are tough and sometimes paying your mortgage payment isn’t an option. There are other alternatives to paying for your home other than just walking away. Many banks and mortgage compnies are very willing to work with interest rates and financing terms so you can keep your home and fulfil your mortgage.
If you have not yet purchased a home please keep this information in mind when signing on the line for your mortgage. Make sure all your personal finances are in order and always have a backup plan. Your mortgage is probably the single most important financial decision you will make so make sure you are ready to take the leap.
Often first time home buyers are caught off guard when the go to close their first mortgage. Even your realtor may forget to tell you about the closing costs of a home mortgage. It’s something they assume you know about or just forget to mention. Unlike a $100 fee a car dealer may try to throw in a the last minute, mortgage closing costs will be several thousand dollars.
How much can you expect to pay for closing costs? It can vary several thousands but typical fees include items such as Discount Points, origination points, appraisal fee, application fee, credit report, title search and title insurance, survey fee, flood certification recording, and transfer charges, attorney fees, interim interest and finally an escrow account must be setup. These closing costs can reach up to $10,000 or more!
Now you can see why closing costs could actually be a deal breaker for some eager first time buyers. Many times buyers don’t even have a down payment large enough to cover closing costs. Imagine how disappointing it would be to walk into a lenders office with $10,000 ready to close a mortgage loan, only to realize your entire down payment is going to be eaten up in fees. Not a single dime will be applied to the principal amount of the loan.
So, before you get too excited about closing your mortgage loan, be aware of all the fees you will have to pay. It may sound depressing, but if you are prepared for these fees going into the mortgage it won’t be so bad. Owning your own home is a big step so do your homework and you’ll be happy with your decision.
So you’re ready to purchase you own home? Maybe you’re tired of living with mom and dad or just ready to stop paying rent. No matter what reason you have you are ready to be a proud owner of your own home.
Unfortunately, a very small percentage of Americans actually own their home, most of us finance our home over the course of several years. Popular finance terms are 30 and 15 year loan terms. However, even if you are financing your home you are still considered a home owner in most peoples eyes.
Many people who think they are ready to buy their first home have no clue how much house they really can afford. A little over a year ago banks were pre approving home buyers for thousands of dollars over what they could really afford. The way banks calculate how much house you can afford doesn’t take into account all the activities not reported in their formulas.
So how much house can you really afford? To find the solution to this equation you first need to create a simple budget. You need to realize how much money you make and how much money you spend in a month. Be very realistic in your budget amounts. If you know you can’t live without the $400 entertainment budget then include it, you don’t want to buy the house and the realize you don’t want to give up your daily coffee habit for a house.
The nationally syndicated radio personality Dave Ramsey will tell you not to spend more than 25% of your income on your house paymnet based on a 15 year fixed mortgage. Others will argue you can afford more but all of these numbers are based on opinion and averages. Your personal situation may be completely different.
When you are calculating how much house you can afford don’t forget some mandatory items that come with a house. Items such as home owners insurance, property tax, maintenance and repairs, increased energy bills may skew your numbers quite a bit
This in turn means that just because you can make a rent payment of $800 per month doesn’t mean you can make a house payment of $800 per month. As I just mentioned there are many other expenses that come with home ownership be sure to include these in your budget.
Don’t stretch yourself too thin just to buy the house. Some people may try to tell you to buy the most expensive house you can afford even if it means some sacrifice. Your salary will soon increase and the payment stay the same so it will get easier with time. This just doesn’t prove to be true. Don’t try to predict the future, only buy what you can afford.
Before you purchase your new home carefully consider all these tips. Forclosuer is a very nasty process so don’t take a risk you really can’t afford. Know your finances inside and out before you sign the lines on the home mortgage!
About a year ago my wife and I decided to purchase an acre of land to build a home. We currently live in a three bedroom 2 and 1/2 bathroom home with an almost finished basement. It’s plenty of room for our family of four, but we wanted to have more land than .125 acres.
My best friend also decided to build a new home too, and is currently renting a 3 bedroom 2 bathroom house. They too have a family of four and he tells me it’s plenty of room to accommodate all their needs. They only have a one car garage, but we most people use their garage for storage anyway.
Their rent is about $600 less than our house payment. Our new house payment will probably be several hundred dollars more than our current payment. Do we really need a house that nice, do we need a house that big? The obvious answer is no, and it would even be more financially smart for us to rent a house for $900 – $1000 per month.
We always hear it’s better to own a home than waste money paying someone else’s house payment, but is this really true? I’m sure there are certain circumstances where buying is better than renting but before you make a final decision you may want to check out all your options. There are many incentives to owning a home such as major tax breaks, but make sure the good outweighs the bad.
Another alternative is to rent a home for several years, saving the extra money to pay down on a home. The shorter term you finance the home for the more money you will save on interest. If we were to save $1,000 a month for 5 years we could pay over $60,000 down on our home, greatly reducing the amount of money we “throw away” in interest.
We are planning on putting our house on the market in the next year or so and finding a house to rent. Hopefully we can stay in the rental house long enough to save a decent down payment. We probably won’t wait the 5 years, but hopefully we will have several thousand dollars to pay down.
I don’t consider myself an expert on buying homes, but I do have a lot of experience. My wife and I have purchased three homes together since we’ve been married seven years. Each house has had many pros and cons associated with it. We’re constantly making a list of things we like and dislike in each house, preparing to build our next house in the coming years.
The point of this article is to let you know it’s okey to be picky when buying or building your first or next home. A hose is an investment, but it’s also your home and you need to enjoy living there. Just like anything else in life if you aren’t happy with something, you’ll constantly be searching for something else and it’s not simple to switch houses.
Before you purchase or build your next house I would suggest making a list of everything you like and dislike in your current home or apartment. If you don’t like something now you won’t like it in a different house. You should also research floor plans and layouts online or in books. Also visit open houses in your city to get actual visuals of houses and again list things you like and dislike about these homes.
When you are ready to buy don’t get in a hurry. There are probably hundreds of homes in any give area that are for sale. If you have to visit each of them before you make your decision. This is especially important if you plan to stay in the home a long time.
After you find your dream home if there are a few things the home doesn’t have, try to negotiate with the seller about taking care of those things. For example if you want ceiling fans in every room add this to the contract, you may get these small things taken care of by the seller before you move into the house. A motivated seller will sometimes go out of their way to close the sale of their home quick.
Remember this will be where you live so make yourself happy. If given the opportunity, don’t settle for second best when it comes to your home.