|How Much Can I Afford?|
Here are some factors to consider in determining how much house to buy.
How much will I spend on maintenance expenses?
Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway
and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on
how well the house has been maintained over the years.
What can I afford?
Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers
to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.
It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.
The price you can afford to pay for a home will depend on six factors:
housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you
have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.
This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the
34 to 38 percent range.
What is Fannie Mae's low-down program?
Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage.
Two new programs will help potential buyers overcome two of the most common obstacles to home ownership, low savings and a modest income.
To address many first-time buyers' struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate
mortgage with either a 25- or 30-year loan term through Fannie Mae's Community Home Buyers Program.
Fannie Mae's new Start-Up Mortgage will assist buyers with a 5 percent down payment who are at any income level. Yet applicants do not need as much income to
qualify and less cash for closing than with traditional mortgages. Borrowers will receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan.
Freddie Mac, Fannie Mae's counterpart, also offers low-down-payment loan programs.
What is the standard debt-to-income ratio?
A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts,
to 36 percent of the total.
The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has
prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income.
Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.
When is the best time to buy?
Here are some frequently cited reasons for buying a house:
Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously
compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets (meyersgroup.com) regularly publishes quarterly reports on home building and home buying. Your local builders
association probably gets this report. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-3199; census.gov. The Chicago Title company
also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title 601 Riverside Ave., Jacksonville, FL 32204; (888) 934-3354; ctic.com.