How much mortgage can I afford to buy?.
By Jamie Kimbrough
Broker Associate, CDPE, CRS, GRI, AHS:
RE/MAX Alliance
The single most important aspect of buying your new home is figuring out how much mortgage you can realistically afford. You have some homework to do. Take a good look at your budget, debts, credit reports and credit score. Once you've got a good sense of your financial status, you will need to start saving for a downpayment and closing costs, along with a few other extra expenses that can occur. These extra expenses could include paying for a home inspector - and, of course, moving costs!
Depending on your financial health - if you have a lot of debt, errors on your credit report, or a low credit score - getting ready financially can take several months! If your credit score falls below 620, many lenders can see you as a high risk borrower. Credit repair can take time, so beware of companies that offer to repair your credit for a fee.
Contacting a solid, reputable lender with experience is key to this process. One of the best ways to find a good mortgage lender is referral by your Real Estate Broker, friends or families.
Living with the Mortgage:
Mortgage lenders commonly use basic formulas to determine how much mortgage you can afford. These formulas are called qualifying ratios and estimate the amount you can spend on a mortgage payment relative to other debts and living expenses and your income.
Typical qualifying ratios require that your monthly housing expenses, i.e., principal & interest payment, tax and insurance escrow, and any mortgage insurance requirements; are no more than 26-28% of your gross monthly income. For example: If your gross income is $3,000.00, that amount X 28% = $840.00. So you would probably qualify for a conventional loan of about $840.00 per month. Sometimes FHA or VA loans have higher qualifying ratios, so be sure to talk to your lender about those types of programs.
A loose guideline, IF your finances are in good shape, is to look for a home priced at two to three times your annual salary. However, it cannot be stressed enough how important it is to work through your lender to determine this amount!
IT IS IMPORTANT THAT YOU PURCHASE A HOME THAT WILL MEET YOUR NEEDS FOR SEVERAL YEARS!
When you are planning and budgeting to purchase a home, it is important to budget for additional expenses such as maintaining the property and utility expenses
Buyers Beware!
When you buy a home, you are entering into a long-term financial obligation. You will have numerous papers and sign legal documentation. It is important you understand your responsibilities so that you will not be a participant or a victim to fraud.
Mortgages are federally backed, and all information you supply must be accurate and complete. Anything beyond that would be considered loan fraud and is a federal crime. Don't be fooled into giving false information!
Have Fun!
Purchasing your new home is a complicated process. With the right consultants guiding you through the transaction, it can be a great, rewarding experience. There's nothing like the satisfaction of home ownership!
Jamie can be reached by calling 303-688-2202
or email her at: jamie@kimbroughproperties.com