Learn How Much House You Can Afford To Buy

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Want to know how much house you can buy. It depends on a few things like your overall debts, down payment, and credit.

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3 Quick Ways to See How Much Home You Can Afford :

3 Quick Ways to See How Much Home You Can Afford

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To make sure that owning a home is within your financial reach, you need to know how much mortgage you can afford .

1. The Standard Rule of Affordability :

1. The Standard Rule of Affordability More often than not, professionals in the real estate industry say that you can typically handle the payment on a home that sells for two to three times of your gross income.

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For example, if you earn $80,000, you should be able to comfortably afford the mortgage on a home from $160,000 to $240,000. To understand how that rule applies to your specific financial situation, put together a monthly budget of all the costs of owning a home, which will include, insurance, property taxes, maintenance, utilities, and any homeowner association fees, and then add in your individual costs.

2. What Will Be Your Down Payment? :

2. What Will Be Your Down Payment? The more money you put down on a home, the lower your monthly payments will be. If you put down 20%, which most financial advisors recommend, you more than likely avoid having to pay private mortgage insurance which costs hundreds more every month.

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So, by putting more down, your mortgage payment will be a lot less. One exception are FHA loans which still require mortgage insurance for the first 12 months even with large down payments. And likewise, if you bring a small down payment like 3.5% minimum for an FHA loan, you will have a higher loan amount, you’ll pay more interest and you’ll need to qualify for the higher monthly mortgage payment.

3. Your Debt to Income Ratios:

3. Your Debt to Income Ratios Lenders generally adhere to their standard debt ratios which as 28/42. Your monthly mortgage payments which cover your mortgage principal, interest, taxes, and insurance shouldn’t exceed greater than 28% of your gross annual income.

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Your overall monthly payments for your mortgage along with all your other bills, such as car loans, credit cards, child support, and utilities shouldn’t be more than 42% of your gross income for the year.

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Here’s is an example to follow: If your gross annual income is $75,000, multiply by 28% and then divide that number by 12 months to get the monthly mortgage payment of $1,750 or less. Look at the total of all your debt obligations each month including your probable mortgage payment and be sure they do not exceed 41%, or $2,562.50 in our example.

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Don’t be discouraged if you are over as some lenders use 45% as a maximum debt ratio rule. Furthermore, it is recommended that you have your complete tax returns reviewed by a loan officer and an underwriter to figure out your maximum loan amount since tax returns can be interpreted differently by lenders as the number they use for your adjusted gross income, AGI, could be different.

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If you have the available funds, you may want to pay off or down your credit card or auto loans so that your monthly debt is lessened so you qualify for a mortgage. In many cases, underwriters will not count an installment loan (auto) that only has 6 payments or less left but confirm to make sure .

Resources:

Resources http:// www.bankrate.com http://www.loanshoppers.net http ://www.realtor.com http :// www.appraisers.org

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