Now is the right time to buy a house. Your mind is full of questions like a swarm of angry bees: "How much money can I get? How much must I put down? How much money will I have to pay?" Well, let me suggest that you start with the question, "How much can I borrow?" I know you shouldn't answer a question with another question, but we need to ask a few more questions to figure out the answer to our first question.
When buying a home, you need to think about a lot of different things. First, you should ask yourself how much you can pay each month. When figuring out how much of a mortgage you can afford, you should take into account all of your current costs, like car payments, credit card bills, student loans, utilities, and so on. You might also want to think about how much you spend on things like entertainment, eating out, and travelling. You don't want to get a mortgage and have to stop going out with friends. Instead, you should make sure you don't spend more than you can afford, which will help your social life stay alive.
At the moment, most lenders will let you have a huge debt-to-income ratio of between 45% and 50%. Your debt-to-income ratio is your mortgage payment plus any other loan or credit card payments, divided by your gross monthly income. Lenders use this ratio to help figure out if you are a good credit risk. So, when you add up all of your revolving debts and your mortgage payment and divide them by your gross monthly income, the total shouldn't be more than 36% to 45%. So, here's a quick way to figure out how much you can put toward your monthly house payment:
—Take your gross monthly income and multiply it by 0.45.
—Take your debt payments that aren't for your mortgage out of the total.
—What's left is the amount you can pay on your mortgage.
So, if a couple has a combined gross monthly income of $5,000 and pays $700 toward two auto loans and one credit card each month, they would be eligible for a monthly payment of $1550. Also, you should know that not all of your monthly mortgage payment goes toward paying off your loan's principal and interest. Some of the money must go toward insurance and taxes on the home. This is important because most mortgage calculators require you to enter these numbers in order to get a good idea of what your real monthly mortgage payment will be.
Most of the time, your property taxes are a percentage of how much your home is worth. Local governments usually multiply the tax rate by the home's assessed value to figure out the property tax. For example, if you pay 0.5% of the assessed value in property taxes, a $250,000 home would have a $1,250 property tax bill every year. You will need to talk to your county tax assessor or a local mortgage broker or bank to find out what the tax rate is. As for homeowner's insurance, you should talk to a local broker or bank to get a general idea of what it costs in your area. Some mortgage calculators will ask for a percentage rate, while others will ask for an annual amount. It can be hard to understand for a first-time buyer, so don't be afraid to ask for help.
One step is to figure out how much you can put toward your house payment each month. Now you want to know how much you can spend on a house. There are many mortgage calculators that can help you do this, but, as I said above, you will need to put in real estate taxes, homeowner's insurance, and interest rates. Some calculators will give you numbers, but they aren't always right, so I would suggest doing a little bit of work on your own. Once you know how much you can comfortably put toward a home each month and have collected your tax and insurance rates, all you need to know is what kind of interest rate you'll get. (Oh, did I forget to mention that you can call your local bank or mortgage broker to get pre-qualified, and they usually don't charge anything?) Once you have an idea of what your interest rate might be, you can plug all your numbers into one of the many mortgage calculators on the internet. Once you have a good idea of what you think you can afford, call a local bank or broker and get pre-qualified to see if you're in the ballpark. Soon, you'll be on your way to owning a home.
