Home Buying Guide
Affordable house buying

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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):

  • 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

You must also account for PROPERTY TAXES and Other Local taxes as well as Homeowners Insurance and possibly mortgage Insurance.

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.

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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