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how do u determine how much home u can afford?

trying to figure out how much home we can afford?
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June 02 2011 - Calcutta
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You need to do a budget with a mortgage officer. Sometimes when I am working out a budget, I add childcare cost (if they have children) or private school tuition into the equation. All mortgage calculators and most lenders do not ask those questions. It is important to work out a budget to cover all your expenses so you know what you are comfortable paying per month. From the figure I can work out a mortgage amount.
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June 02 2011
How much do you spend for your housing now? remembering that home ownership is more then the monthly payment. The unexpected costs are what hurt the most, so how much will you put away for a rainy day! So here is what I would tell you. You need a certain amount each month for repairs. Add what you pay now to the unexpected amount and see where you are.
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July 07 2011

As most said, a lender pre-approval.  Remember, this is a maximum, don't feel like you HAVE to spend it all.  Start lower to see if you can find what you want.  It's more difficult to start high and move down in price/

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July 03 2011
Contact a local lender and get prequalified. It is never fun to start shopping for homes and fall in love only to find out that you cannot get qualified for the loan.
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July 02 2011

House payment (including principal, interest, taxes, insurance, HOA) divided by monthly income (before taxes) = percentage A

The maximum amount of home you qualify for can't be more than 31%.
The general rule of thumb for PI is $100 per $10K of loan.  Although with interest rates being so low now a days, it could be less.

You also need to consider the second ratio:
House payment + all other minimum monthly payments of revolving and installment loans divided by monthly income (before taxes) = percentage B
If this ratio is above 41% in most payments, then you disqualify.  You may have to put more down to offset it or get a lower house price.

I hope this helps!


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June 30 2011
Call a licensed lender in your area...best of luck
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June 10 2011
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 Yes we sat down and did a budget, and it is right we could afford that amount of home.. But we will NOT go that high,, just cause we dont want to! i mean, ya we  could go their and be s tretched to the limit, but why? and NO way.. not us. We can find a good quality house here in our small town for about 80,000. Yes. not brand new and NOT a fixer upper..
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June 06 2011
Profile picture for hpvanc
You used the calculators and got a number that seems high to you, and it is since it is a maximum you can afford.  Now plug that number into your budget and figure out a what you are actually comfortable with.  That will be the number you take to the lender to see if is under their maximum. 
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June 02 2011
Profile picture for the_country_hick
How is $120k for an affordable mortgage possible? It all depends on your other debt and income level. The old rule of thumb is 3 times your yearly income is a safe gettable mortgage. That sounds close for a conservative number.

If that number was shockingly low just try it again with 7% interest.

$120,000 at 5% is $644.19 a month payment
$97,000 at 7% is $645.34 a month payment.
Both numbers are just borrowing money no PMI taxes, or anything else is included.

We all know that interest rates are going to have to go up. They can not stay at this level forever. You just saw a small example of how slightly higher interest rates will destroy house prices in the future. If your income does not go up while interest rates do how can house prices not be forced down by about 1/4 with a small 2% interest rate increase?

I would rather pay a lower price for a house with more for interest. That way if I had to sell I would not lose so much money. Plus, if I pay off extra each month I can cut down faster the time before the mortgage is paid off than would happen with a lower interest rate.
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June 02 2011
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Only you live your life. Only you know how much you spend each month. Only you can safely determine how much you can afford to spend on a house.

To do this you need to look at your budget. Look at all of your monthly expenses today. Remove rent from that. If you pay your own utilities remove that amount also. Subtract all of those expenses from your income. Whatever is left is all you can spend on a house, taxes, insurance, clothes, and save some money with. A house eats money. Sooner or later things break or wear out. You want to save money for future expenses and retirement.

Looking at the links below should be helpful. A lender could allow you to borrow more or less than you can really safely afford. Never take so much loan you are struggling to be able to eat good food more than once a week. Also, remember that energy costs and food could cost a lot more in the future. Allow extra for this probably expense.
"How to determine what you can safely afford to pay towards your monthly mortgage payment. Lenders may give a different number. "

"Does it make more sense to buy, or to rent? Here is the way to find out for sure."

"Why rent if you could buy for less money? Valid reasons inside."

Once you have decided to buy and know how much you can safely afford each month a lender can tell you how much that amount per month can get for a mortgage.
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June 02 2011
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says 120,000 .... we can afford.. HOW IS THIS POSSIBLE?
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June 02 2011
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 ok.. here is what we owe,,, 3,400 on car.. no credit cards, no other payments, other than rent is 500, utilities, and car insurance, make about 37,500 a year.. what amount of house can we get?
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June 02 2011
Profile picture for hpvanc
Use the online calculators, run your own budget scenarios to figure out what you are comfortable with, without sacrificing your life for a house.  Be sure to figure in maintenance, taxes, HOA fees if applicable, utility cost and etc.

After you have modeled the worst case scenario, go to a lender with your absolute highest figure and validate that they will willing lend that amount to you.  Do not try to find the maximum you can afford and then look for housing based on that number.  You need to do your own homework, the 1st contact with the lender should be auditing and validating the homework you have already completed.  Then ask the lender for a pre-approval letter for the price you would be most comfortable staying under, not the full maximum you determined, you can always go back for one up to your own predetermined maximum later.

Don't let agents or lenders determine what you are comfortable spending for you.  Use the lender to validate that you are not over reaching, and then let the agent know only what they absolutely have to know, remember even if they tell you they are your representative they are still a salesperson and should be treated as such.
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June 02 2011
Thanks for your question "goodinhouse123".  I HIGHLY recommend contacting a local lender, one that you can sit in their office and see.

Good luck, hope this helps.
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June 02 2011
Profile picture for sunnyview
You could try a basic mortgage calculator here or one like this here that allows you to put in your basic recurring monthly expenses. Ultimately, it really depends on what you can afford monthly not the maximum you can qualify for.

There is an excellent budget calculator here where you can run some numbers and see how much extra you have each month over your current housing cost rent and utilities. Hope it helps.
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June 02 2011
A lender can prequalify you for a loan based on your credit and income. There are certain ratios and guidelines that they follow for their underwriting, such as a debt-to-income ratio.

Just because a lender qualifies you for a loan for a certain dollar amount doesn't mean that should be your target.
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June 02 2011
Without knowing your current financial circumstances, it's difficult for anyone to tell you exactly how to determine how much you can afford.  I would highly recommend going to your bank and asking to speak with a loan officer.  The loan officer will ask you for information regarding outstanding debts, monthly income, etc., and will be able to give you an estimate as to what you could afford and therefore be qualified for with a loan.  It is no obligation to purchase a loan with most banks if you're going in to get pre-qualified and simply looking for information.  Besides, if you do decide to purchase a property, most require pre-qualification letters with the offers.  It's good to get it done now, because it will help you and your agent better plan what types of properties you should be looking for, thus saving you a lot of time and frustration. 

Good luck and happy house hunting!

Emily
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June 02 2011
 
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