How To Calculate How Much House You Can Afford

You need to know how much house you can afford if you want to buy your first house or move on to a new one.If you don’t take these calculations into account when you apply for a loan, you can end up being rejected from a home loan.The ability to make monthly payments and how much you can pay as a down payment are two things you have to consider when determining your price range.

Step 1: Take care of your assets.

You have to pay a certain amount on the spot for a down payment.The amount is usually determined by the purchase price of the house and the lender requirements.If you apply for a mortgage, the lender will want to know how much cash you have available for the down payment.To determine a likely maximum downpayment, look at all your liquid assets, such as your savings and/or monetary gifts from family members.Most private lenders will be looking for assets that have been in your account for at least two months.If you transfer money into your account before you apply for a loan, your application may be rejected even if you have enough for the down payment.You’re not lying about your income, that’s what the lender wants to see.

Step 2: Know how much you will need for a down payment.

Typically, you will only be allowed to borrow 80% of the value.The difference between that and the selling price will have to be covered by your down payment.If you want to buy a house, you’ll need 20% of the home’s value.The selling price of the house may be higher than the appraised value.You should start thinking about how much you can afford for a down payment on a house.If you have $30,000 saved, you can use it to make a down payment on a home that costs $150k.

Step 3: Understand the financing programs that are out there.

Different financing plans have different down payment amounts.You can get a conventional loan or be eligible for a government-backed loan.A mortgage broker can help you with a combination mortgage if you can’t afford a 20 percent down payment on your home.You’re taking out a first mortgage up to 80% of the home’s value, and a second mortgage for the remaining amount.While the rate on the second mortgage will be slightly higher, the interest on it is tax deductible and combined payments should still be lower than a first mortgage.Some cities offer programs to help people buy homes.Atlanta has a program called Invest Atlanta that gives qualified homebuyers an interest-free second mortgage to cover the cost of a down payment.There are housing assistance programs in your area.If you are a military veteran, you may be able to get a zero-down payment mortgage through the VA.Those who qualify for these mortgages do not have to worry about paying too much in closing costs, which makes them a great deal.A private lender may be able to reduce your down payment to between 3.5 and 10% of the purchase price if you have an insured Federal Housing Administration loan.You must have a minimum credit score of 600 to be eligible for a FHA loan.Conventional loans require 10% to 25% of the purchase price for a down payment and are not insured by the federal government.

Step 4: You should pay less than the standard amount.

The government may be able to help you get a mortgage with a down payment as low as three percent.Freddie Mac and Fannie Mae offer low down payment loans.It can be a reasonable way for new buyers to achieve their dreams of homeownership if they put down less.Purchase private mortgage insurance in order to get one of these loans.Depending on the value of your home, this can cost as much as $50 per month.Provide evidence of income, job status, and assets if you have a fair credit score.There are risks associated with homeownership counseling.While your down payment will be very low, you may end up paying more in the long-term due to higher interest rates and paying into a private mortgage insurer, which does not increase equity.

Step 5: Know the ratios used by the lender to determine if you qualify for a loan.

The ratio is called “28 and 36”.It means that no more than 28% of your monthly gross income should go towards housing expenses.When combined with your housing expenses, monthly payments on your outstanding debts must not exceed 36% of your monthly gross income.You can find the percentage for your gross income.You have $3,750 in monthly income if you make $45,000 a year.There are 28 and 36 percent of $3750 that are equal to $1050 and $1350.This means that your housing expenses should be no more than $1050, which is 28% of your monthly income.Your total payments on debt, including on your car and mortgage, should not exceed $1350, which is 36% of your monthly income.The bank may decline your mortgage application if your projected payments are higher than the values.If you maxed out your housing payment amount at 28% and paid $1050 per month, you would have $300 left to pay down your other debt.Car payments, alimony, credit card payments and student loans can all be included in monthly payments on outstanding debts.

Step 6: How much do you expect your housing expenses to be?

Adding the annual real estate taxes and insurance costs in your area to the average price of the home you want to buy is necessary.You should add an estimate of how much you can expect to pay in closing costs, which are charges and fees that generally run between 3 and 6 percent of the money you’re borrowing.Credit unions often have lower closing costs.To find your monthly payments, put these totals into a mortgage calculator.You can find a calculator online or in a spreadsheet.You will have a hard time getting a mortgage if the figure is over 28% of your gross income.

Step 7: You should be able to pay.

You have several options if your target home or home price has a monthly payment that you can’t afford.You can either look for cheaper housing, wait several more years and work towards earning more money, or increase your ability to pay quickly.Reducing your debt is one of the options that can be done.Reducing debt means paying off your debt.Car payments and credit card debt can be included.You can contribute more to your mortgage each month if you take care of your debts.Increasing available income can include taking on a second job or finding part-time work.This can mean sending a non-working spouse to work or going in together on a house with a partner or friend.

Step 8: Are you able to afford the house you’re looking for?

Determine your ability to pay using your specific circumstances and an online mortgage calculator after considering the above money-saving options.Take on an additional job, take out a high-interest loan, or save for a large down payment before committing to any of these options.Bank rate’s calculator is in-depth: http://www.bankrate.com/calculators/mortgages

Step 9: There are risks and benefits to buying and selling a house at the same time.

If you want to move up, you may need to wait for your current home to sell so you can afford the down payment on your new home.If you sell your house first, you may feel pressured to find and buy your new house quickly, but it may also give you the money you need to put a down payment on your dream home.You may have to make an offer on your new house but negotiate for the purchase to be contingent on the sale of your old house.Since the sale can’t be completed until the buyer’s house is sold, contingent offers are less desirable for the seller.It is possible to put your current house on the market first.

Step 10: Determine the likely sale and profits of your home.

The amount of money you will make selling your home depends on a number of factors, including how much you owe on the home, any fees you need to pay, and property taxes.If you don’t know how much your house will sell for, you can use recent sales in your area of similar homes as a starting point.Do you think your house will sell for $250,000?Take the amount you owe on your mortgage from this number.If you owe more than $250,000, you have to pay $175,000.From that number, subtract any additional fees, such as your real estate agent’s commission, closing fee, transfer tax, and whatever property taxes you owe (you pay these up to the day you sell the house).There’s a total of $750 in closing fees, and you owe $500 in property taxes if you don’t sell.If you add the numbers together, you can find out how much you will make from selling your house.$16,250 is equivalent to $158,750.Search online for “Home Sale Proceeds Calculator” to find out how much you’ll have to put toward a down payment on a new house.