How Much House Can I Afford?
One of the best ways to determine how much house you can afford is to contact a FreeLoanComparison.com lender partner. Working with your mortgage lender and using this Web site, you’ll find the FreeLoanComparison.com mortgage product that will best suit your financial situation.
You can also use one of our mortgage calculators to determine how much house you can afford. Remember, if you’re buying a house with someone else -- a spouse, parent, partner, or companion, for example -- that person’s annual gross income and debts can be considered in computing the cost of the home.
Preparing a budget might be a good way to help the mortgage lender know whether you have enough money for a mortgage down payment, closing costs, monthly mortgage payment, property taxes, homeowner’s insurance, and other costs associated with buying a new home.
Mortgage lenders use guidelines to determine whether prospective new home buyers will be able to pay their monthly mortgage payments comfortably. Though flexible, the guidelines generally state that a household should spend no more than 28 percent of its income on housing expenses and no more than 36 percent of its income on total debt obligations (including the monthly mortgage payment).
When working with a FreeLoanComparison.com mortgage lender partner to get pre-qualified, make sure to ask about the variety of mortgage loans available. Also, you may want to find out if your mortgage lender uses an automated underwriting. This technology can help provide faster loan decisions by your mortgage lender, potentially saving you time and money.
Down Payments
A mortgage loan down payment for a home is usually between 3% and 20% of the total cost of the home. The amount of the required down payment depends on your credit history, income, the cost of the home, and the type of home mortgage you choose. Many first-time homebuyers put down 3 to 5% of the cost of the home, although there are options available requiring less than 3% so ask your mortgage lender if this is something you are interested in.
If your new home down payment is less than 20%, you will likely need private mortgage insurance (PMI). This is insurance you pay to protect the lender if you don’t repay your home loan in full. PMI can be added to your closing or monthly mortgage costs. When you apply for a home loan, you should also have at least two month’s worth of mortgage payments saved, called cash reserves.
Some borrowers may elect to use 80-10-10 financing which allows them to finance 90% of a home’s purchase price without paying PMI. 80-10-10 financing is essentially two mortgages – the 1st one for 80% of the purchase price and a 2nd for 10% of the purchase price (these are often from the same mortgage lender). The two combined allow the borrower to finance 90% of the mortgage but without paying PMI.
Most mortgage lenders want to know the source of your down payment and have restrictions about how much can come from gifts from a relative. Ask your mortgage lender for more information.
Mortgage Closing Costs
Closing, or settlement, costs are fees you pay when you actually get your new home mortgage loan from your financial institution. These include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed, and other settlement costs. You should negotiate for lower fees the same way that you should negotiate for the best mortgage rate. Some fees, such as taxes, may be fixed but your mortgage lender may be willing to negotiate others.
Closing costs generally range between 2 to 7% of the property value. You’ll receive an estimate from your mortgage lender after you apply for a home mortgage. You must pay these costs before you move into your new home.
For more helpful mortgage tips on how much house you can afford, mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!
Last update: November 14, 2008
