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To
determine how much you can afford to spend on a house
you must review your monthly income and expenses
just like a lender will when you apply for a mortgage.
The
following general rules apply (these lending
guidelines may vary by lender and your credit):
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Housing
costs - including principal, interest, taxes,
assessments or any other fees shouldn't exceed 28%
of your gross income. (Conventional Loan)
Note may be as high as 29% on FHA Loans.
-
Monthly
debt payments including your mortgage, auto
loans, utility and credit card bills shouldn't
exceed 36% of your pre-tax income (conventional).
On a FHA Loan, may be as high as 41%.
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You
must be honest with yourself, and consider all
your debts that you have AND might have should you
buy. Remember, you will be buying items for your new
home that you might not of had before. Be prepared,
not sorry.
The chart below
illustrates your maximum monthly payment and maximum
allowable debt load based on your gross (before tax)
annual income.
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Gross
Income
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@
28% Max Housing |
@36%
Max House and Debt |
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40,000
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$933
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$1,200
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60,000
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$1,400
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$1,800
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80,000
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$1,867
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$2,400
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100,000
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$2,333
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$3,000
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120,000
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$2800
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$3,600
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You must also account for
PROPERTY TAXES and Other Local taxes as well as
Homeowners Insurance and possibly mortgage
Insurance.
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Real
estate taxes - Property taxes
are part of your monthly mortgage payment.
Before you put an offer in on a home,
the real estate agent should advise you of
the taxes.
If you pre-qualified for a mortgage, your
loan officer would ask you. You must
figure in the local and other taxes as
they would be payable every month to the
lender who in turns distributes to the
taxing authority.
You may also pay a separate water tax,
school tax, sewer tax or other fees. Know
the taxes. |
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Homeowners Insurance
- To obtain a mortgage,
the lender will require that you have a homeowners
policy. You may also obtain a mortgage
insurance policy, which pays off your mortgage i
the event of death. as an alternative, you should
consider a TERM LIFE Insurance policy, as it is
often cheaper than a mortgage insurance policy and
the benefit better over the years you pay. You can
get an estimate of insurance costs from an insurance
agent or insurance company. Be sure to
inquire about special requirements for hazard
insurance, such as mandatory coverage for floods,
earthquakes, or wind in coastal areas.
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