How Much You Should Spend on a Home – 9 Year Mortgage
For most people buying a house will be the biggest purchase they make in their life, and one they will be paying off for years, or even decades to come. Given that it’s such a big decision, how do you know how much to spend on a home? Spending too much on a home could leave you with little to no money for other goals, such as retirement, college funds, vacations, and toys. 9 Year Mortgage encourages you to read on so that you don’t make the mistake of overspending on your home!
9 Year Mortgage on Where to Begin
There are two standard debt-to-income ratios; the first just includes your housing expense and is known as the front-end ratio, while the second includes all of your debt payments and is called the back-end ratio.
Front-end ratio: This shows how much of your gross monthly income would go toward the mortgage payment. As a guideline, your monthly house payment, which includes principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. 9 Year Mortgage says to figure this out you need to calculate your housing expense ratio by multiplying your annual salary by .28 and then divide by 12, the answer given is the max amount you should spend on your monthly housing payments. The amount of house you can afford will then depend on the interest rate of your mortgage, the size of your down payment, and the term of your loan. For example, if you make $80,000 per year, then you could afford a housing payment of $1,867 per month. If taxes and insurance are about $250 per month, that leaves about $1,600 for your mortgage payment. At 5% interest on a 30 year loan, that means you could have a $300,000 mortgage balance.
Back-end ratio: This ratio shows how much of your gross income goes toward all of your debt obligations, which would include your mortgage, car loans, child support and alimony, credit card bills, condominium fees, student loans, etc. Your total monthly debt obligation should not exceed 36 percent of your gross income. 9 Year Mortgage says to figure this out you need to calculate your debt-to-income ratio by multiplying your annual salary by .36 and then divide it by 12, the answer given is your max allowed debt-to-income ratio. In that same example above for a person making $80,000 a year, the total debt payments they could afford would be $2,400. Since we already figured out that the housing payment could be $1867, that leaves about $530 to service other debt payments. What does that mean? Well, it means you can have up to $530 in car payments, student loans, credit card payments, etc. If you have higher debt payment then you will be able to afford less house. For example, let’s say you have student loans and credit cards payments that add up to $500 per month. In addition, you recently purchased a new Toyota Camry for $30,000 at 6% interest on a five year loan. That means your car payment is $580 per month. Now your debt payments are $1,080 per month, leaving only $1,320 ($2,400 – $1,080) for your housing payment. The bottom line, you can now only afford a $200,000 house! That’s right, your new car just knocked $100,000 off the price of the home you can afford.
Home Sales Price and Affordability
Now that you know how much of a mortgage payment you qualify for, you can figure out how that would relate to a sales price. The easiest way is to use a mortgage calculator or visit a web site with an online payment calculator like the one at 9 Year Mortgage. Be careful when speaking with a mortgage broker, and realize that just because they say you can afford a certain home price, that doesn’t mean you’ll be comfortable making that payment for 30 years. Make sure you are prepared with cash reserves in the event that something should happen to your employment. Also consider that many mortgage programs require at least a 3-5% down payment, if not more. Don’t forget to look at the market and the issues that matter to you. 9 Year Mortgage says research school districts, crime statistics, impending construction or anything that could possibly decrease the value of a home. Also look around at the surrounding area to see if its a place in which you could see you and your family.
Taxes and Insurance
9 Year Mortgage wants you to also know that lenders include the cost of taxes and insurance when figuring out how much of a house you can afford.When it comes to real estate taxes, 9 Year Mortgage wants you to remember that property taxes are part of your monthly mortgage payment, so it is very important that you get an estimate of how much yours could be. If you’re wondering how to find out how much this will cost, 9 Year Mortgage suggests asking your real estate agent or tax office for the rates that would apply in the area you would want to buy in.
When it comes to the insurance side of things, you must insure your property to qualify for a mortgage. 9 Year Mortgage suggests going to an insurance agent or company to obtain an estimate of your insurance costs. 9 Year Mortgage also wants you to keep in mind that you need to ask about special requirements for dangerous insurance, like mandatory coverage for floods, earthquakes or wind (only in certain areas). 9 Year Mortgage wants to remind you that if you put less than 20 percent down on your mortgage, you will have to take out a second loan or get mortgage insurance. The second loan would be called a piggy-back loan, this would then bring the first mortgage down to 80 percent of the home purchase price. The bad news with this is, both of these alternatives will raise your monthly payment.
Ending it with 9 Year Mortgage
When it comes to mortgage lenders they are mainly concerned with your ability to repay the money the lent you. Lenders consider your credit history, monthly gross income, and how much cash you will be able to apply towards a down payment. If you fall short in any of these areas, it is likely that you will be denied the loan. 9 Year Mortgage suggests applying a down payment of at least 20 percent of your homes value so that you don’t have to worry about getting a second loan. Also, in most cases you should only consider buying a home when you plan to stay there for several years. Click here for more information on renting vs. buying a home. 9 Year Mortgage wants to remind you that buying a house is a big deal so make sure that you are ready for all of the responsibility that comes with buying a house. To lean more about us, and to read what our clients are saying, check out our 9 Year Mortgage Reviews page. For more information on becoming debt free, visit the 9 Year Mortgage Accelerate Your Path site.
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