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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:
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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%.
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.
|
Gross
Income
|
@ 28% Max Housing |
@36% Max
House and Debt |
|
40,000
|
$933
|
$1,200
|
|
60,000
|
$1,400
|
$1,800
|
|
80,000
|
$1,867
|
$2,400
|
|
100,000
|
$2,333
|
$3,000
|
|
120,000
|
$2800
|
$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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Every