How much house can you afford ?

Experts say you will typically spend about a third of your income on financing your home. Before you start to look for your dream house, you should figure our just how much of that dream you can afford. You should pay off as much debt as you can before shopping for a house, such as car loans and credit bills.  Try to save a couple of hundred dollars a month for the down payment to bring down the loan amount.  

Mortgage lenders look at your ability to repay the mortgage loan by reviewing:
  •   Your credit history
  •  Your monthly gross income
  •  How much cash you can accumulate for a down payment, which is usually 10 percent to 20 percent of the sale price.

A good way to go around buying a house is to clear up your credit and start saving every month so that you have some amount left for down payment . Lenders rely on ratios to determine who qualifies for a loan and who doesn't. If your monthly debt obligations are too high relative to your income, you're out in the cold when it comes to a mortgage, at least conventional mortgage. There are programs now which can overlook debt-to-income ratio but for this exception rates are not on the friendly side.

To determine  how much house you can afford :

Your monthly payment - including  principal, interest, real estate taxes and homeowners insurance should not be more than 28% of your gross monthly income (before taxes). This is your housing expense ratio.

Your total monthly debt obligation should not be more than 36% of your gross income. Total debt includes the mortgage payment plus other obligations such as car loans, child support and alimony, credit card bills, student loans, condominium association fees. This is your debt to income ratio.

Example:

Lets take homebuyer who makes $40,000 a year. The maximum amount of money available for a monthly mortgage payment at 28 percent of gross income would be $933. However, the lender says the total debt payments each month should not exceed 36 percent , which comes to $1,200. 

Closing Costs:

Closing costs can vary from one lender to another. Click here for more information.
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15yrs=180
30yrs=360 		Simple Interest Rate
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