HOW MUCH MORTGAGE CAN YOU AFFORD?
Interest rates July 16th, 2010: 30 year fixed 4.625. 15 year fixed 4.250 Rates can flucuate daily:
1: As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can generally afford a home priced between $200,000 and $300,000.
To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like propety tax, insurance, maintenance, utilties, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.
2: How much money do you have for a down-payment? The higher your down-payment, the lower your monthly payments will be. If you put down at least 20% of the homes cost, you may not have to get private mortgage insurance, which are added to your monthly payment. That leaves more money for your mortgage payment. The lower your down-payment, the higher the loan amount you'll need to qualify for and the higher your monthly mortgage payment.
3: Consider your overall debt. Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn't total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities and credit cards, shouldn't exceed 41% of your gross annual income. These percentages can vary with different lenders. Consult with your lender for their policies.
4: A quick calculation to determine what your principal & interest would be on your loan use the following calculation. Assuming a 5% interest rate and a 30 year fixed loan multiply $5.37 times the increments of $1000 of the loan. As an example if you purchase a home and the loan is $100,000 multiply $5.37 times 100 equals a principal and interest payment of $537.00 per month. To this you would add the property taxes and insurance. As a rule of thumb you add $60 for insurance and if you know the yearly property taxes divide by 12 and that will be your monthly obligation. So your payment will consist of Principal+Interest+Taxes+Insurance or what is commonly called PITI.
Some of the content contained here courtesy of the National Association of Realtors
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