How Much House Can You Afford?

Most home buyers do not know where to begin when determining how much house is affordable. Typical wisdom begins by looking at a debt (mortgage payment, credit card debt, car payments, etc.) to income ratio of no more than 40%. Based on a monthly family income of $4,000 per month, this means your total debt should not be more than $1,600 per month. According to a mortgage calculator found at www.cgi.money.cnn.com/tools/houseafford/houseafford/html a family with this income could conservatively afford a monthly house payment of $780. This equates to a home price in the range of $80,000.

You’ve probably read the newspaper headlines. The current credit crises. A record number of homes in foreclosure. This is why it’s even more important to ensure that you are in a strong position financially to purchase a home. By contacting your bank or a local lender you can determine the strength of your financial background.

Many current home owners having issues purchased homes with little or no down payment and interest only mortgages. This means that the payments made pay only interest and do not reduce the principal amount of the loan. While these loans made it easier for many people to purchase homes, many buyers in this situation are “upside-down”, owing more on their homes than the current value of the home. Refer to the article on short sales if you find yourself or someone you know in this situation.

Other considerations include the length of time you can stay in your home. If you cannot commit to remaining in the home you purchase for at least three to four years, you will unlikely be able to recoup the transaction costs of buying and selling a home not to mention allowing enough time for the market to improve, allowing appreciation in the base price of your home.

How ownership also comes with added responsibilities. You’ll need to budget for regular upkeep and home repairs. When buying a home, it’s a good idea to purchase a home buyer warranty or request that the seller purchase this for you. The benefit of this is peace of mind that anything missed in inspection is covered by the policy. Normally for a deductible of $50 the policy will cover repair of electric, plumbing and heating systems. This type of policy can be renewed after the first year for an additional year.

In spite of the fact that many people believe they can save money by doing it on their own, an experienced realtor can guide you through the home buying process and actually save you money through negotiation and by representing you to ensure that the process goes smoothly. You also receive advice on making sure that you are purchasing a house in good condition in a neighborhood that will be likely to increase in value. There are also many other small details like clear title, absence of liens or easements, and that any issues that come up in home inspection can be properly addressed.

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