How Much House Can You Pay For?
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The time to decide how much you can afford to pay for a house is before you start looking for one. It is a sad fact that most borrowers have no idea how much they can afford to pay for a house and end up wasting their time looking at homes that they discover, once they apply for a mortgage, are way out of their price range.
There are a number of items that determine how much you can spend on a house, including household income, the amount of the down payment, and the market rates and closing costs on home loans in your area. Your total expenses will also come into play, since they will affect how much income you have leftover to pay your home loan each month.
To do this, lenders use certain ratios that tell them what you will be able to afford, ratios based on income, expenses, debt, down payment and closing costs.
You can calculate these factors to within some degree of accuracy, or you can visit a professional mortgage consultant who can assist you with these calculations.
The first thing that most folks have a problem with is having enough of a deposit to begin with. People don't routinely save as much as they did in the past, so frequently they will not have any decent balances in savings accounts. The days of no down payment loans are now behind us since the credit crisis in the housing market, so most people will have to count on saving a substantial amount for their down payment.
Figure at least a 10% down payment as a requirement for most banks. For a home that costs $200,000, which is an average price today, you will have to have saved at least $20,000, plus whatever funds you may need for closing costs. Lenders will be pleased to give you an estimate of the closing costs.
A very low assumption would be that you have to make $25,000 available. The next step is to learn out what your mortgage payments will be. You can visit many sites on the internet that will help you calculate what you can afford for a monthly home loan, or you can call a mortgage broker.
The traditional rule is that your housing costs should not exceed 25% of your income. Lenders will examine this closely, more so if you have high credit card debt. If you are spending 25% of your income on your house, the rest is (in a perfect world) expected to be spent on utilities, food, vacation, education and savings. A high credit card debt will mean that you will have that much less available for your basic needs.
If you net $6,000 per month, you can manage a mortgage payment of about $1,500 (25%), barring any other large, fixed expenses. Now you have some numbers in hand to start shopping for a home.
Article Source: Articlelogy.com
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