Buying Your Home - What You Can Afford
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 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.
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:
1. gross income
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates
Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly 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.
When is the best time to buy?
Actually, whenever you are ready to buy and want to be in a home. It used to be that the Fall and Winter time were the best times to buy due to reduced prices, but, the market in the North Texas Area has gotten to be year around nowadays and the prices tend to be fairly stable throughout the year..
Where do I get information on housing market stats?
The Texas Association of Realtors website: TAR Scroll down to the bottom of the homepage and click on Neighborhood Market Data.
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.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
How do you determine the value of a troubled property?
Call us! We can determine its value compared to the surrounding homes and the property's condition. 214-923-8535.