Long & Foster Real Estate
24 Hour Line (703) 978-8259
FAX (703) 978-0532
Email: caryfvu@verizon.net
Determine Housing Affordability
How Much House?
House hunting begins at home--with planning. The first step toward buying a house is to sit down. Before you grab the road maps and hit the streets, you need to do a little planning. We call it "pre-qualifying." Simply, it's determining how much house you can afford to buy Knowing your affordable price range will bring your house hunting into focus. Many lenders, for a small "upfront" fee, will send out all required verification and pre-approve you for a mortgage, allowing you the opportunity to negotiate as a cash buyer.
How much house you can afford to buy depends on two things. How much you can afford for the monthly housing payment. And, how much you can invest in the down payment. Monthly payments include principal and interest on the mortgage loan, and property taxes and insurance against fire and other hazards. These four costs are often abbreviated "P.I.TI." (For some buyers and lenders, monthly housing costs may also include homeowner association dues, condominium fees and mortgage insurance.)
Qualifying
In today's market an "affordable" home is not so much determined by sales price as it is by the financing which translates that price into a monthly payment. A house hunter's first step is to set a housing budget, then go shopping for the house (price) and payments (PI.T I.) that fit that budget.
Even
though there are many ways to qualify to buy a home, make sure the
monthly payment makes sense for you. A current rule of thumb is that the
monthly payment should not be more than 25-33% of gross monthly income.
Restrictions will apply for smaller down payments.
Figuring Your Housing Budget
Generally, lenders figure that the home buyer shouldn't pay more than 28-38 percent of gross income for PI.TI. payments, or 36-38 percent for both P.I.T I. and monthly debts combined. This might be a little more or a little less depending on other outstanding long term debts (more than 10 months), alimony/child support payments, number of children and their ages, and other household budget items.
The easiest way to make a quick estimate of the mortgage amount you may qualify for requires applying the two basic formulas for loan application that lenders use. Keep in mind the loan balance will vary over the term of the loan, although the monthly payment remains the same.
Two Lender Formulas
Most
lenders will require that loan applicants meet both guidelines before
approving a mortgage loan. The first formula compares income to housing
costs without including long term debts, the second includes all debts.
28% Formula
Total Monthly Housing
Costs
(P I. T I.)
__________________ = 28% (or less)
Gross Monthly Income
36% Formula
P.I.Tl. + All
Monthly Debts
__________________ = 36% (or less)
Gross Monthly Income
A variety of other formulas exist. VA and some lenders use a single ratio based on mortgage payment and all debts, which allows easier qualifying for a more expensive home for a borrower with little debt.
To figure your
housing budget, simply multiply your gross monthly income (before taxes)
by 28% and 36%. For example, a family with a monthly income of $3,500
might qualify for a mortgage with payments up to $980. For specific
figures, please feel free to contact Cary Fichtner-Vu.
How Much House Can I Afford?
The
key items are the size of the down payment, interest rate, APR and the
amount of the mortgage. The down payment might be zero in the case of
VA-backed mortgages. Or a buyer may invest 20 to 25 percent of the
purchase with a conventional loan and not be required to buy mortgage
insurance. Cary Fichtner-Vu will be glad to help you in determining just
how much house you can afford.
Click here for a JAVA calculator on affordability
BUYER PACKAGE
INCLUDES:
-
Relevant current articles include economic forecasts, market conditions, etc.
-
Cost vs. Value Article
-
Virginia vs Maryland Article
-
Potential Roadblocks to Successful Closings
-
Considerations in Preparing to Buy a House
-
Home Finder's Profile
-
Mortgage Checklist
-
Homeowner's Analysis
-
Home Inspection Radon Information
-
Home Warranty Information
-
Buyer Guarantees
Determine Housing Affordability
