Profile picture for ACH77

Wondering how much of a home I can afford to buy

I earn 75K a year 
other debt is a auto loan (30K remaining and payments of $520 a month) and revolving credit card debt that ranges from 0 to $1000 depending on the time of the month

My credit score according to experian is 686, shows a few late payments on an auto loan four years ago and one late payment on a credit card four years ago.

Im recently divorced (no judgements or debt incurred) but only have about $8000 in savings currently so down payment and closing costs concerns me as my savings are limited at this time.

I currently rent and my lease is up Jan 31.

Is it realistic to purchase at this time or do I need to build my savings up first. I think the combination of home prices and interest rates make it one of the best times to purchase and dont want to miss the opportunity.

I see things online about FHA, Fannie mae homepath etc. What should I be looking at?
  • October 24 2010 - Glendale
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Answers (16)

Based off the information you've put forward, you should be able to qualify for a mortgage.  The 520/mo will be counted as monthly debt, and your debt to income ratio should be around 38% and 51% depending on the program.  The best thing to do is speak with a mortgage professional.  If you'd like a referral, we can help. 

  • October 25 2010
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Your stats are correct, Dan, but linear thinking is faulty. It's always faulty. But I will concede at this point, as this is not the appropriate forum for a debate of "chicken or egg."

All the best, my new friend!
  • October 25 2010
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Profile picture for the_country_hick
Randy, I know that last blog is a bit older. However, with the exception of the tax credit (aka buyers bribe of $8k) being expired the rest holds up. Including the buyers bribe even shows how prices did fall overall when that went away. Thus it gives some credence to the rest also.
  • October 25 2010
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Dear Dan:

Try Zillow or the National Association of Realtor websites for mortgage calculators. There are also calculators showing how much home you can afford with estimated costs for insurance, taxes, interest etc.

Many Realtors and mortgage lenders will have these calculators on their websites.

Also, if you need help with the financing, don't rule out zero down USDA loans (rural zip codes), free grant money for buying a foreclosure home and the Fannie Mae paid closing costs throught the end of this year.

Your Realtor will be able to help you with all.

Jeff Masich, Realtor
Arizona Homes and Land
HomeSmart
Scottsdale
  • October 24 2010
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Hey, Dan. I actually rather liked your comments, but that last blog you you linked to was written in January of this year. Just sayin...
  • October 24 2010
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Bam !!

How about a calculator  

http://www.ginniemae.gov/2_prequal/intro_questions.asp?section=YPTH
  • October 24 2010
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Here is a link to one of my blog posts that will answer your question...

http://www.trulia.com/blog/johncantero/2010/10/have_you_ever_wondered_how_big_a_mortgage_can_i_afford
  • October 24 2010
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Profile picture for the_country_hick
I forgot to add take that monthly payment you can afford and ask a lender what kind of mortgage that can buy. Stick with a fixed rate mortgage but consider different terms like 15, 20, 25, and 30 years.
  • October 24 2010
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Profile picture for the_country_hick
I could care less how much a bank will lend you. That may or may not be truly representative of what you can afford to buy. 

Consider a different approach that allows you to say how much you can afford. Take your monthly income. Subtract your normal monthly expenses (except for rent). Now take out 10% (perhaps more) for savings, emergency fund, and special occasions. Whatever is left is the maximum monthly payment you can afford. HOWEVER this includes property taxes, insurance, maintenance, heat, electricity, water, mortgage payment and a bit more. 

If you figure you can afford to comfortably spend $800 a month do not listen to a lender who says they can get you a $1,200 a month mortgage. You may qualify, but can not afford it.

Always build in a financial safety margin. If something happens like you lose the furnace, the roof leaks, your car loses a transmission, or anything happens that eats money it will make life much easier to deal with.  


Consider the blogs below. Each gives something to think about you may have not known about or considered before. 

Use your numbers. This shows how to see which makes the most financial sense for you.
"Does it make more sense to buy, or to rent? Here is the way to find out for sure."

A very different perspective is below. Things to consider that show some unexpected benefits of renting compared to buying. 
"Why rent if you could buy for less money? Valid reasons inside."

Lastly, some things I found that suggest waiting awhile longer to buy. I am waiting myself and getting really annoyed at prices being supported by flawed government policies.
"10 valid reasons to wait to buy a house."

  • October 24 2010
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Hi ACH77,

I believe your instincts are correct that now is a good time to take advantage of the current interest rates, low housing pricing, and the incentives the sellers are giving for you to buy their home.

Using the numbers you provided, I calculated an FHA home purchase for a $200,000 home.  Using an average 4.25%, 30-year fixed interest rate, your debt-to-income ratio (DTI) is a very comfortable 32.9%.  I used $100/mo as your minimum monthly payment on your credit cards, $80/mo for homeowners insurance, $151/mo for your property taxes & $100.mo for any HOA fees you might have. You may find that I estimated high on the reoccurring monthly expenses to be on the safe side.

The one area you are a little light on has to do with your closing costs after your down payment, so I also based these numbers on the seller paying all your closing costs.  This happens quite a bit when you use an experienced real estate agent with good negotiating skills.  In this market, find a good agent who will negotiate your closing costs to be paid by the seller. I can help you there if you would like.

You mentioned the HomePath loan product... I am a HomePath approved lender & I know that the HomePath loan looks attractive from the outside, but they can be very expensive.  Be sure to research these loans, carefully.

In closing, your APR on this FHA loan is 4.805% because of FHA's mortgage insurance (MI); if you had no MI, your APR would be 4.25%, the same as your interest rate.

All the best,
Ros

Roswell Moore, CMPS
Certified Mortgage Planner
  • October 24 2010
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One of the reasons our real estate market is in such turmoil is because many people got bad advise when it came to this very question. Lenders were making loans to people who could qualify, but really couldn't afford the homes they were buying. In defense of the mortgage lenders, our government was encouraging them to make these loans. My advise would be for you to go to a mortgage lender and pre-qualify for an amount that fits with your income and debt situation. Lenders are more realistic about qualifing borrowers these days because they don't want to get stuck with more forclosures. You are right about it being a good time to buy. There are some great deals out there and great rates. Many sellers are offering to help pay your closing costs or even pay them entirely. A mortgage lender can help you decide which type of loan is best for you.  
  • October 24 2010
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One of the most common loans today is an FHA loan with 3.5% down payment.  You can ask for typically 3% closing costs to be paid by seller which helps conserve your cash.  I agree with the comment to not pay off you auto loan and to ensure you are not late on any credit payments at all.

Next step is to meet with one or more loan officiers.  Often a REALTOR® can reccomend one he or she knows has a track record of closing on time, low fees, and excellent communications.The loan officer(s) will be able to provide you with Preapproval letters showing what is the maximum home you can buy.  then its up to you how much safety margin below the maximum you want to go. With limited cash flow i would reccomend you get a Home Warranty paid by seller to cover unexpected problems with the home.
  • October 24 2010
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I would definitely recommend you just continue to make all of your payments (auto / credit card etc) on time.  Do not pay off the auto loan!! 
When you get a loan there may be requirements for open and active lines of credit and you may hurt yourself ... I am begging you to just make your payments on time and not do anything else with your credit until you have assistance from a professional. 

We use your monthly obligation amounts as shown on your credit report to figure debt.  So each of your credit cards will report a monthly amount that you are obligated to pay (the minimum payment as shown on your statement) and that is what we use.  So debt wise is $520 +____ ? for monthly obligations of credit cards. 

You can buy right now - using a FHA loan but the question is what do you want to buy house wise. 

Also there are other qualifiers.

There is no great mystery BUT so many factors to consider that are particular to the property you select.  Such as property taxes, homeowner insurance, HOA etc.  

Sincerely,
Celia
  • October 24 2010
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Getting rid of that car loan should be one of the first thing to consider.

  • October 24 2010
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Profile picture for ABBAUSA
I believe you are wise to investigate your options concerning owning vs renting. You can get qualified for a loan, but that is just one part of the home buying equation.


How Much Can I Afford Mortgage

The link will give you a good idea from a money prospective, but again many other factors.

Contact a Realtor© in your area for a really good idea of what is available to you at this time.

Good Luck!

James Callas - Realtor®


  • October 24 2010
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The very first step in your journey towards buying a house is to consult with a local, reputable mortgage lender. Almost every agent/broker has their 'preferred' lender, and I do too. If you'd like the name and contact info, email me from my profile.

With an FHA loan, you can get into it with as little as a 3.5% down payment. Depending on the property and seller, you might be able to negotiate the contract for the seller to pay the closing costs, which will most likely run 3-4%. That's something you should discuss with your Buyer's Agent/Realtor.

Your out of pocket costs will include home inspection, termite inspection and appraisal, all of which should be under $1,000.

Seriously, talk to a good loan officer and secure the services of a buyer's agent to assist and represent you in the searching and purchasing of a home.

All the best!
  • October 24 2010
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