Balancing What the Bank Says You Can Afford and What You Can Really Afford
This is a great read for first time homebuyers especially. So many times buyers don't think about payment amount, which is where you can really get into trouble after the closing. Get prequalified by a direct lender, but follow up with asking about how much you should spend to get your "comfortable" payment. It could be considerably less purchase price than you might have thought. Thanks to Ilyce Glink for this timely article.
When determining how much to spend on a home, your bank may have a different idea about your budget than you.
A mortgage lender might approve you for one amount, based on a conventional debt-to-income ratio, while you'll get more money if you go for an FHA loan with higher DTI limits or for an FHA 203K loan, which qualifies you for up to 125 percent of the sales price if work needs to be done to bring the property up to code.
At the same time, it might be that none of those amounts is what you're comfortable spending each month on your mortgage payment, real estate property taxes, and homeowner's insurance premium.
Homebuyers often forget that buying a home means you take on not only monthly mortgage, tax, and insurance payments, but also assessments (for a condo or co-op) and ongoing maintenance costs, which can add up.
Figuring out how much you can afford to spend on a house means thinking about your lifestyle and your debts, not just what the bank says you can afford.
To find out more about how to determine what you can really spend on a home, check out my blog post on the Equifax Personal Finance blog: http://real-estate.equifax.com/2010/11/balancing-what-bank-says-you-can-afford.html
What is your strategy for figuring out a budget for buying a home?
Ilyce Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com, The Equifax Personal Finance Blogand CBS Moneywatch She is Chief Content Strategist at RealtyJoin.com, a community for real estate investor
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