Make Sure You Know How Much Home You Can Afford
Before you even think about shopping for a home, you should decide how much you are able to afford to pay for it. This will save you umpteen hours looking at houses that you should not really be in the market for to begin with.
Understanding how the process of how a lender knows what you can afford to pay for a house will make it easier for you. Your total expenses will also come into play, since they will affect how much income you have leftover to pay your mortgage each month.
What you can afford to pay will be determined by ratios that are based on factors such as income and expense, outstanding debt, amount of deposit and closing costs.
You can try to calculate these costs yourself, or you can make it easy on yourself by meeting with a mortgage consultant who will do this for you.
One of the biggest stumbling blocks to owning a home is the down payment. We are no longer in in a savings oriented society and most people have a hard time saving that elusive next egg. No down payment loans are rarely granted these days, since they were such a big reason for the mortgage problems over the last few years.
Figure at least a 10% down payment as a requirement for most lenders. For a home that costs $200,000, which is an average amount today, you will have to have saved at least $20,000, plus whatever funds you may need for closing costs. You can request an estimate of closing costs from your lender.
Five thousand dollars is probably a fair estimate of how much you will need for closing costs, so be ready to have $25,000 in the bank. Now you have to look at what you can afford to pay on a monthly mortgage. There are home loan affordability calculators on the internet, or you can ask a mortgage consultant to do these calculations for you.
Typically, the standard used is that your housing costs should not exceed 25% of your income. But this does not reflect extraneous credit card debt. The remainder of your income above 25% should be devoted to clothing, utilities, savings, education and entertainment. A high credit card debt will mean that you will have that much less to use for your basic needs.
Without these additional issues, you can count that a monthly income of $6,000 means that you can manage $1,500 in mortgage, taxes and insurance. This is the smartest way to shop for a home, once you really know how much you can afford to pay for it.