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Just How Much Mortgage Can I Afford?
The typical rule-of-thumb to answer this question is “one week’s gross income”. But because of the tax advantages of home ownership, its really higher than that. 31% of your annual gross income is a workable rule-of-thumb. So, if you have a household income of $ 100,000, then you can afford up to approximately $ 31,000 per year in monthly payments. Divided by 12 months per year, this is $ 2,583 per month.
The secret though, what the money merchants at the banks and mortgage companies don’t want you to know, is that $ 2,583 per month must cover more than merely the repayment of the loan. This payment must cover
(1) the repayment of the principle amount of the loan,
(2) the interest on the loan,
(3) the real estate (i.e., ad valorem) taxes,
(4) the homeowner’s insurance,
(5) any homeowner’s association fees (if you live in a development with common elements, and
(6) any escrow amounts the lender requires.
So let’s look at this. Assume your real estate taxes are (or would be) $ 250 per month and your homeowner’s insurance is the same. That’s $ 500 per month. Now assume you live in a development with common elements, with a payment of $ 100 per month. Now the total is $ 600 per month. We’ll assume there are no more escrow funds to set aside.
The monthly total is $ 600 per month. You can afford $ 2,583 per month. $ 2,583 less $ 600 is $ 1,983 per month. Assuming a 4.5% mortgage, payable monthly over 30 years, then you can afford to borrow approximately $ 391,000. Remember, this is a fixed-rate mortgage. The interest rate does not vary over the life of the loan.
Another work of caution. Just because you can afford to borrow $ 391,000 does not mean you should borrow $ 391,000. You probably also have some credit card debt, maybe a student loan (or two!) and every month brings emergencies you did not foresee. You also have your retirement goals to fund and maybe college educations to think about. It is, therefore, OK to borrow less than you can afford to pay back.
Why Should I Get Mortgage Insurance?
Since a house is a large financial transaction, Home Lenders want to protect their investment in every conceivable way. Thus, the lenders require the borrower to show their desire for the house. An example of this commitment prove (and the ability to pay all back home installments) is a down payment have. The house lender may grant an advance of about 5-10%. On the other hand, if the borrower will go home coverage, the amount of the deposit significantlyreduced by the home specialist.
“Mortgage Insurance” is a term that will probably discover, if you are looking for a loan. Let us know, just what this has to mean notion ( ‘home coverage’).
– Lenders Tree
Mortgage Insurance is an important tool for both the borrower and the home specialist. By its definition, is the main coverage protects the home specialist with the borrower defaults on the home loan. Insurance covers the loss of a home can receive such a specialistCircumstance. Therefore, in addition to receiving the document at home, the home is protected against ruin by specialist domestic coverage.
– Lenders Tree
The payment of this home coverage is obviously paid by the borrower, and there are a few methods which can provide the borrower pay for this house to cover premium ie a method that is as an element of the monthly installments to be made at home which include home specialist (which in turn goes) to the sum of insurance on the home page.
But how doeshome coverage be no improvement for the borrower?
A borrower could be made to only 5% or 10% down payment, instead of the usual 20% or whatever they choose. This means that coverage is at home really well for people who do not have enough funds large down payments (20%) is a fairly significant amount in itself.
Such people can save premiums by removing house coverage. What is more, because at home there cover a lot of confidence to the Home Lenders(in terms of their money for sure), could form the processing of your home faster and smoother than what they could not have been home to cover commitment. So, not only at home cover any increase in the purchasing power of a person, but offers him / her deal with advantages in terms of always a great home and getting faster.
http://www.lenderstree.pannipa.com/2009/10/14/why-should-i-get-mortgage-insurance/
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