How Much Can I Afford
As you think about applying for a home loan, you need to consider your personal finances. How much you earn versus how much you owe will likely determine how much a lender will allow you to borrow.
First, determine your gross monthly income. This will include any regular and recurring income that you can document. Unfortunately, if you can't document the income or it doesn't show up on your tax return, then you can't use it to qualify for a loan. However, you can use unearned sources of income such as alimony or lottery payoffs. And if you own income-producing assets such as real estate or stocks, the income from those can be estimated and used in this calculation. If you have questions about your specific situation, any good loan officer can review the rules.
Next, calculate your monthly debt load. This includes all monthly debt obligations like credit cards, installment loans, car loans, personal debts or any other ongoing monthly obligation like alimony or child support. If it is revolving debt like a credit card, use the minimum monthly payment for this calculation. If it is installment debt, use the current monthly payment to calculate your debt load. And you don't have to consider a debt at all if it is scheduled to be paid off in less than six months. Add all this up and it is a figure we'll call your monthly debt service.
In a nutshell, most lenders don't want you to take out a loan that will overload your ability to repay everybody you owe. Although every lender has slightly different formulas, here is a rough idea of how they look at the numbers.
Typically, your monthly housing expense, including monthly payments for taxes and insurance, should not exceed about 28 percent of your gross monthly income. If you don't know what your tax and insurance expense will be, you can estimate that about 15 percent of your payment will go toward this expense. The remainder can be used for principal and interest repayment.
In addition, your proposed monthly housing expense and your total monthly debt service combined cannot exceed about 36 percent of your gross monthly income. If it does, your application may exceed the lender's underwriting guidelines and your loan may not be approved.
Depending on your individual situation, there may be more or less flexibility in the 28 percent and 36 percent guidelines. For example, if you are able to buy the home while borrowing less than 80 percent of the home's value by making a large cash down payment, the qualifying ratios become less critical. Likewise, if Bill Gates or a rich uncle is willing to cosign on the loan with you, lenders will be much less focused on the guidelines discussed here.
Remember that there are hundreds of loan programs available in today's lending market and every one of them has different guidelines. So don't be discouraged if your dream home seems out of reach.
There are a number of factors within your control which affect your monthly payment. For example, you might choose to apply for an adjustable rate loan which has a lower initial payment than a fixed rate program. Likewise, a larger down payment has the effect of lowering your projected monthly payment.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
How does my credit affect my loan
Thinking about buying a house? Then think about your credit history...the folks who lend money do!
How well you have handled your credit obligations in the past is of utmost importance to lenders today. The good news is that this information, for the most part, is available to you.
Your credit history is maintained by three different private companies called credit reporting agencies: Equifax, TransUnion and Experian. You can order your report by phone and charge it to your major credit card if you like. It usually takes about a week to arrive. Or you can order your report online and view it within seconds.
It's a good idea to get a copy of all three reports, because if an error exists on even one of the reports, it may negatively affect your chances of getting the loan you want. Your credit report lists all the consumer credit that has been extended to you over the past seven years. It will show what your highest balance has been and what your current balance was on the date last reported by the creditor. It will also show how many payments you made on time and how many late payments were late. Late payments are grouped into categories showing how late you were. For example, if your credit card payment was over 30 days late one time, it might not be considered too serious. But if payments were over 60 days late four times, over 120 days late two times and over 180 days late one time, you have had a serious problem. That problem is going to impact your ability to borrow money.
It just makes sense to find out about your credit and correct any errors now. Regardless of how many credit problems you have had in the past, there are two good points to remember.
First, negative credit information can be reported in your credit file for only seven years. After that, it drops out and cannot even be considered. The one exception is bankruptcy, which can be reported for 10 years. But after that you start with essentially a clean slate.
Second, lenders are much more concerned about how you have handled your credit recently than with what happened several years ago. Even if you have had a bankruptcy, if you have kept your nose clean and paid your bills on time since then, it is possible you could qualify for a loan after as little as two or three years.
One of the best developments in the world of lending has been risk-based pricing. That's a five dollar term for the ability of lenders to offer higher priced loans to borrowers based on their demonstrated ability to repay. In other words, even if you have slightly fractured credit, you can still likely get a loan. It just may cost you a little more.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~`
What can a REALTOR do for you and what is a Realtor?
The REALTOR® you work with could be one of your most valuable resources. Unlike many real estate agents who are simply licensed by their state to do business, REALTORS® have taken additional steps to become members of the local board of REALTORS® and have agreed to act under and adhere to a strict Code of Ethics. Plus...
A REALTOR® can help you determine how much home you can afford. Often a REALTOR® can suggest ways to accrue the down payment and explain alternative financing methods.
A REALTOR®, in addition to knowing the local money market, also can tell you what personal and financial data to bring with you when you apply for a loan.
A REALTOR® is already familiar with current real estate values, taxes, utility costs, municipal services and facilities, and may be aware of local zoning changes that could affect your decision to buy.
A REALTOR® can usually research your housing needs in advance through a Multiple Listing Service--even if you are relocating from another city.
A REALTOR® can show you only those homes best suited to your needs--size, style, features, location, accessibility to schools, transportation, shopping and other personal preferences.
A REALTOR® often can suggest simple, imaginative changes that make a home more suitable for you and improve its utility and value.
A REALTOR® is sensitive to the importance you place on this major commitment you are about to make. Look for a real estate professional to facilitate negotiation of a win-win agreement that will satisfy both you and the seller.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Cost of Owning a Home
When it comes time to shop and compare homes, it is very important to be aware of the monthly costs (mortgage plus HOA fees) associated with each property. This will allow you to make a comparison. This page outlines common expenses to help you with your budget preparation.
For new construction, the purchase price may include:
Warranty program enrollment fees
Recurring Costs:
There are more expenses involved in owning a home than just the purchase price. Monthly fees or common expenses:
Unit and contents insurance
Telephone, cable and Internet access
A contingency for emergency repairs
Maintenance costs associated with the upkeep of your home
Get Pre-Approved Now
If you have questions regarding purchasing a property, I can help. As a REALTOR® who specializes working with first time home buyers, I have the experience and tools to help you make an educated and sound investment. Call me today or fill out the request form and let’s get started.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Relocating to the Upstate
If you are serious about moving and would like to use the services of an experienced real estate professional (remember: Buyer Services are absolutely free!), please fill in the form below or call 864-918-1799 to order a FREE Relocation Package mailed directly to you. We will contact you to confirm your order and to further customize your package.
The FREE Relocation Package contains valuable information about schools, neighborhoods, shopping, area attractions, as well as maps and much more.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~