“How much I can afford to buy a house?” is a question we hear frequently from first time home buyer looking to buy a home. When you buy a home, the amount you can spend depends on how much you have in cash to use for a down payment and how much you can borrow. A mortgage lender can prequalify you for a loan, in the mortgage prequalification process, lender will ask you a few questions about your income, credit profile and debt, and give you an estimate of what you can borrow based on those facts.
Find Your Own Comfortable Payment
Before you meet with a lender to get mortgage prequalification, it’s a good idea to evaluate your personal financial situation and come up with a monthly payment range that you and your family can comfortably afford. You can use your current comfort level with your rent payment and look at your monthly income and expenses to estimate your own ideal mortgage payment. Don’t forget that when you become a homeowner your housing payment will include principal and interest, property taxes and homeowners’ insurance. If your down payment is less than 20 percent, you’ll need to pay mortgage insurance. In addition, you may need to budget to pay homeowner association dues.
This is the amount of money you comfortable on putting towards a down payment on the house. Be sure to budget about 3% of purchase price for Closing Cost.
This is the total amount financed for your new home. To guestimate, take the offer price minus down payment amount.
Estimate Front Ratio
Front end ratio is a ratio that indicates what portion of an individual’s income is used to make mortgage payments. It is calculated as an individual’s monthly housing expenses divided by his or her monthly gross income and is expressed as a percentage.
Estimate Back Ratio
Bank end ratio calculates the percentage of gross income going towards other types of debt like credit card or car loans.
This is the combined monthly income for you and your co-borrower. Include all income before taxes, including base salary, commissions, bonuses, overtime, tips, rental income, investment income, alimony, child support, etc.
Include all of you and your co-borrower’s monthly debts, including: minimum monthly required credit card payments, car payments, student loans, alimony/child support payments, any house payments (rent or mortgage) other than the new mortgage you are seeking, rental property maintenance, and other personal loans with periodic payments.
This is the length of time you choose to pay off your loan (e.g., 30 years, 20 years, 15 years, etc.)
Your DTI is expressed as a percentage and is your total “minimum” monthly debt divided by your gross monthly income. The conventional limit for DTI is 36% of your monthly income, but this could be as high as 41% for FHA loans. A DTI of 20% or below is considered excellent.
This is an annual tax that governments place on individuals’ income. It includes federal tax, most states and some local entities. The national average is around 30% but can vary based on income, location, etc.
The mortgage payment calculator includes estimated property taxes. The value represents an annual tax on homeowners’ property and the tax amount is based on the home’s value. In Maricopa county, typically property tax is about 1%.
Commonly known as hazard insurance, most lenders require insurance to provide damage protection for your home and personal property from a variety of events, including fire, lightning, burglary, vandalism, storms, explosions, and more. All homeowner’s insurance policies contain personal liability coverage, which protects against lawsuits involving injuries that occur on and off your property.
Mortgage Insurance (PMI)
Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price. It protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Also known as PMI (Private Mortgage Insurance).
Typically, owners of condos or townhomes are required to pay homeowners association dues (known as HOA fees), to cover common amenities or services within the property such as garbage collection, landscaping, snow removal, pool maintenance, and hazard insurance.
Con Tran, Realtor and San Jose resident
Specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in San Jose or the Bay Area area, we hope you will consider us. Contact us today (408) 509-2124 for complimentary consultation.