Understanding What You Can Pay for a House
by Mitch P. Truax
Before you even think about shopping for a home, you should decide how much you are able to afford to pay for it. This will save you umpteen hours looking at houses that you should not really be in the market for in the first place.
There are a number of items that influence how much you can spend on a home, including household income, the amount of the down payment, and the interest rates and closing costs on home loans in your area. Your total expenses will also be considerd, since they will have an effect on how much income you have leftover to pay your home loan each month.
Most lenders will have a ratio that takes into account income, current debt and financial obligations, interest rate and closing costs to estimate how much a borrower can afford.
You can try to calculate these costs yourself, or you can make it easy on yourself by meeting with a mortgage consultant who can do this for you.
One of the largest stumbling blocks to home ownership is the down payment. Today, people don’t put aside a certain amount of money into a savings account to save up for things they need mortgage broker in calgary. The days of no down payment loans are gone since the credit crisis in the home mortgage market, so most people will have to count on saving a substantial amount for their down payment.
Usually, you won’t be able to close on a home loan without at least a 10% deposit. For a house that costs $200,000, which is an average price today, you will have to have saved at least $20,000, plus whatever amount you may need for closing costs alberta mortgage broker. A lender can readily give you an estimate of closing costs.
Five thousand dollars is probably a fair estimate of how much you will need for closing costs, so be ready to have $25,000 in the bank. The next step is to learn out what your monthly payments will be. You can figure how much you can pay based on income and current expenses if you visit one of the many calculators found on the net, or you can take a simpler route and speak to a mortgage consultant.
The traditional rule is that your housing costs should not exceed 25% of your income. High credit card debt will have an effect on your disposable income, however. The remainder of your income above 25% should be devoted to food, utilities, savings, education and entertainment. Spending too much to pay for your credit card debt will give you less disposable income to pay your home loan.
Barring high credit card balances, you can figure that if you earn $6,000 a month, you can afford to pay $1,500 for the home loan, taxes and insurance. Now you have some numbers in hand to begin shopping for a home.
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