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Knowing How Much You Can Pay for a Home

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By : Fredrica Smith    99 or more times read
Purchasing a home is one of the toughest decisions to make in your life. This endeavor presents itself as a both enthralling and intimidating venture. The idea of having your own home might be exciting, but the financial obligations it entails are multifarious. As a consequence, you have to methodically go through the steps and decisions involved in it. And the foremost concern to take into account is your home affordability.

Your affordability to purchase a home is typically determined in respect to two considerations – the amount your lender will allow you to borrow, and the amount of the down payment you can pay or the seller will demand. Once these amounts are determined, it would then be more convenient for you to determine as well which type of home and mortgage plan would suit your budget. On the other hand, ensure that you have acquired quotations for your mortgage and have searched for probable homes prior doing the computation.

A tool that could make things easier for you is the home affordability calculator. This is usually free for use from real estate financing websites. It is very easy to use and some efficient sites even explain the breakdown of how the computation came up with the results. You would only have to provide some details about your present financial status. The results would be shown to you after a couple of minutes.

The information you would be asked to input include your annual gross income, sources of funding for the purchase, monthly debt payments such as for credit card, car loan, child support, and estimated rates for mortgage factors like annual interest, property tax, homeowner’s insurance and down payment. Along with the loan assumptions, you might also be asked to add further specs such as loan term in years, new rate versus old rate if ever you would be getting a new loan.

The general guidelines of mortgage lending are the ones utilized by most providers of this tool. Typically, the computation goes through three tests in order to come up with results as close as possible to reality. The tests are as follows:

  1. Ratio of housing expenses to income – your monthly housing expenses will be compared with your monthly gross income.

  2. Ratio of long-term debt to income - your monthly debt obligations, which might also include the rates according to your prospective mortgage plan, will be compared with your monthly gross income.

  3. Requirement of minimum down payment – most calculators use the common down payment amount of at least 3% of the home price. If your probable mortgage plan does not require a down payment, then this would not be factored in.

The results would reflect your monthly mortgage payments and total obligation for purchasing a home, which is your estimated affordability. On the other hand, keep in mind that this computation is still not exacting. This is due to the possibility that some lenders and sellers might consider other factors in determining your capability to buy a home. They might even ask for your current employment status or history, credit score, crediting issues, and others.

By getting a grasp of your financial responsibility, you will find it easier to handle various tasks – from selecting a home that suits your budget to keeping your payments in regulation.
The Real estate market can be an enjoyable, satisfying and lucrative experience for you. Whether you are a homeowner, a buyer, a landlord or simply a real estate enthusiast, get to know more about the latest in the real estate market now. Read more about it here: Waddell AZ Realty, Foreclosed Homes in Waddell and Waddell AZ New Construction.

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