Posts Tagged ‘house payment’

Home buying tip – Buy a house you can afford

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!

Is a biweekly mortgage right for me?

A biweekly mortgage is a payment system setup through your lender or another third party company. Mortgage payments are made every two weeks instead of once per month. The end result is that you pay one extra payment per year saving you thousands of dollars in interest per year. Many of the third party companies will charge you a setup fee as well as a monthly maintenance fee to use a biweekly payment system. You can do the same thing yourself, but it requires a little discipline. So is a biweekly mortgage right for you?

If you have a loan for $200,000 on a 30 year fixed rate of 6.5% then you will pay out $255,085.82 in interest if you pay only the minimum payment. By setting up a biweekly payment plan you will pay out $194,430.48 a savings of $60,655.34. You will also pay off the loan almost 7 years early. This assumes that you don’t have to pay a setup fee and you are not paying a monthly service charge for setting up biweekly payments as I mentioned earlier.

It’s still true that you will save money and pay off your mortgage quicker even if you use a third party company to setup biweekly payments and pay a fee, but remember you can do this yourself. Just pay 1/12 of your payment extra each month or an extra payment at the end of the year and you’ll get basically the same result. So to answer the question I think paying off a mortgage quicker and savings thousands of dollars is for everyone!