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You need money before a home

Posted by  on Apr 01, 2010
 

Before anyone can look into home loans, or even buying a home, they have to have some idea of what they can afford. It will save a lot of time and unnecessary trouble if a homebuyer knows what price range to look for. The three biggest factors that weigh into what is affordable are monthly income, long-term debts, and cash that can be accumulated for a down payment and closing costs. The size of the home loan will depend on what the person can afford.

Mortgage lenders say that in general housing expenses should not exceed 25 to 28 percent of the homeowner’s monthly income. Housing expenses include mortgage principal, interest payments, property takes and insurance. Most people do not know how much property taxes or homeowners insurance will cost. Typically the median annual taxes per $1000 value averages $12. The median property insurance increase averages around 30%.

The calculated income includes not only a steady employment, but also overtime and commissions, social security, child support. Workman’s comp and any income collected from trusts, funds, etc.

When considering a borrower for a mortgage, lenders take into consideration any regular monthly debts and financial obligations. Some of these finances include other real estate loans, bank loans, auto loans, revolving accounts, etc. Any housing expenses plus long-term debts should not be more than 33-36% of the gross monthly income. Long term debts are monthly expenses extending more than 10 months into the future, according to some mortgage lenders. It is recommended that as much debt as possible is paid off before applying for a mortgage. Having an idea of what monthly mortgage payments that can be afforded will help determine the maximum loan amount that one can borrow. A mortgage calculator helps determine the maximum mortgage rate and total cost for the loan terms that are given. Having an idea of what monthly mortgage payments one can afford will also help in deciding the right kind of mortgage that is desired. For example, a 15-year fixed rate mortgage requires higher monthly payments than a 30-year loan.

Mortgage lenders expect homebuyers to have enough money available on hand for the down payment. This is usually up to 20percent of the asking price of the house, in addition to the closing costs which are 3-6 percent of the loan amount. Many people turn to savings, stocks, bonds and individual retirement accounts. Some mortgage programs allow use of gift money, or grants from a non-profit organization for part of the down payment.

In the event that not enough money can be found for the down payment, some mortgage lenders allow private mortgage insurance. This allows someone to get a mortgage with a down payment as low as 5%. Other types of loans can offer even less costly rates, and the closing costs will be a part of the mortgage itself. Some might be lucky enough to find mortgage loans that do not require a down payment, but these are only available to certain applicants.

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