You’re ready to make the move into a new home and start a new chapter in your life. You’ve looked online, maybe attended a few open houses and you have your wish list. Wants: hardwood floors, plenty of closet space and an attached garage.
Have you really thought about how much home you can afford? The amount of money that you can afford to spend on a mortgage each month depends on many things, including your existing debts/loans and your total income.
First, you have to figure out how much income after taxes you have yearly. How much could you realistically put aside each month for a house payment after your other expenses? Make a list of everything that you pay for and compare that against your total income. How much do you have left?
Second, you must consider the down payment. The down payment can be as low as 0 percent with a VA loan, to 3.5 – 5 percent with other loans. The suggested down payment, however, is a minimum of 20 percent down.. If you do not have that, then lenders may see you as a risk. Therefore, you may be roped into private mortgage insurance (PMI), which can be up to one percent of your total mortgage yearly. For instance, if your overall interest rate is five percent, with mortgage insurance it will come out to about six percent instead.
Next, you should think about closing costs. Closing costs encompass a very wide range of possible fees you will have to pay before receiving the title to your new home. They can include pest inspection, home inspection, the appraisal or your first year of homeowners insurance. You can expect to pay between two to five percent of the home’s total price at closing. If your prospective home is $175,000, then you could be paying from $3,500 up to $8,750 in closing costs. However, closing costs are negotiable between the buyer and seller.
After you’ve taken into consideration the down payment and the possible closing costs, you should consider location. If you work in the city and want to buy a home there, the property may empty your wallet a little more than a house in a suburb. However, you would be spending less on transportation. If you are okay with a slightly longer commute, you may find a larger house for less.
Have you considered all of these things? Check out First Lenders’ free mortgage calculator for a little more help by clicking here. When you’re ready, you can start the pre-qualification process; or, if you have more questions, we are glad to help! Click here to contact us.