What Can You Afford?

          The American dream of homeownership is within your reach! With the right planning, many people who rent the home in which they live could afford to buy one. 

          The Village Family Service Center, offers resources for people hoping to purchase a home. Check out www.helpwithmoney.org or contact The Village Family Service Center at (800) 450-4019 for more information.

          Educating yourself about the process and responsibilities of being a home owner will most likely save time, stress and even money, in the end. There are many programs available within the metro area to help you purchase a home. Click here to view local incentives. Before you find a home you like, one of the first steps is to determine what you can afford. Check out the following tips:

          • Review your savings. A certain amount in savings is sometimes needed to apply toward down payment and closing costs. There are loan programs available (e.g., FHA and VA mortgage programs) that require less cash payment at closing. Be prepared for some costs that you cannot finance through your loan; there are some costs that must be paid at the closing, the day that you buy your home.
          • Review your debt responsibilities. Consider how debt, in relation to income, will influence a lender's decision on your mortgage loan amount. Additional debt from house payments on top of existing debt might restrict your lifestyle.
          • Get pre-approved and pre-qualified with a lender. A lender can help you find the right loan or assistance programs available to purchase a home. See below for additional tools to help you estimate the house price you can afford.
          • Monthly expenses may increase. The purchase of your home will likely change how much you will need to spend on expenses every month. If you have trouble saving now, your finances might be too tight with the purchase of a home. If the time is financially right for you to purchase a home, consider the advantages that ownership has over renting.
          • Think of it as scheduled savings. As a home owner, your monthly mortgage payments serve as a type of savings plan. Over time, you will accumulate what lenders call "equity", an ownership interest in your house that you may be able to borrow against or convert to cash by selling the house. Renters continually pay rent to a landlord for as long as they rent without opportunity to build up equity.

          Check out the incentives available through local jurisdictions or state governments by clicking here.

          Buyer's Cost Statement

          You can save yourself the disappointment of falling in love with a home you can't afford by pre-qualifying for a loan through the lender of your choice. Using the chart below, you can estimate the amount you can afford. As a rule of thumb, your mortgage payment (principal, tax, interest and insurance) should be no more than 28 percent of your gross monthly income before taxes. All of your monthly obligations including your mortgage payment should not exceed 36 percent of your gross monthly income. The 28 percent and 36 percent ratios apply only to conventional loans. FHA and VA loans have different criteria.

          1. Add monthly principal and interest payment from amortization schedule, (see below).
          2. Add monthly real estate tax (can be obtained from your real estate agent or your local county courthouse).
          3. Add monthly insurance payment (get estimate from insurance agent of your choice).

          Total the above three items to find your basic monthly housing cost.

          1. Compare basic housing cost to the 28 percent ratio on the bottom housing affordability chart.
          2. With your other monthly obligations, the ratio becomes 36 percent at the bottom housing affordability chart.
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