The housing market is turning the corner, yet mortgage rates remain at all-time lows. That means now is the perfect time to get into the Northern Virginia property market. Making the jump from renting to owning can be daunting, but these four tips will help you determine just how much home you can reasonably afford to own.
1. A good rule of thumb is that you can afford a mortgage that is two to three times your gross annual income. Don’t forget to add in all household income when estimating this figure. For example, if your gross annual income is $100,000 per year, you’re probably safe to begin searching for a home priced in the $200,000 to $300,000 range. When you approach your mortgage lender to begin your application, be sure to bring a family budget along with you that includes your personal expenses as well as typical home ownership expenses such as property taxes, insurance costs, and any applicable community association fees.
2. Don’t forget about your down payment. Know how much you can afford to spend on this. The higher your down payment is, the lower your monthly payments will be. Also, if you can afford to put down at least 20% of the sale price, you may not be required to get private mortgage insurance which can add hundreds to your payment each month.
3. Know your overall debt. Lenders often use the 28/41 rule. That is, your monthly mortgage payment, including principal, interest, taxes and insurance, shouldn’t come to more than 28% of your gross annual income. Your mortgage costs plus all of your other bills such as car loans, utilities, and credit card payments, shouldn’t be more than 41% of your gross annual income. So if your gross annual income is $100,000, multiply it by .28 and divide the result by 12, in this case arriving at a monthly mortgage payment of $2,333 or less. Do the same calculation again using .41, and your monthly bills including your mortgage payment should come out to $3,416 or less.
4. Use your rent as a guide. The tax benefits of owning a home usually allow you to afford a mortgage payment including taxes and insurance of about one-third more than your current rate payment without a change in your lifestyle. If your current rent payment is $1500, multiply it by 1.33 to get an estimate of an affordable mortgage payment, in this case $2000.
Now is the perfect time to buy whether you’re a first-time buyer or a seasoned property owner, and the best way to find exactly the home you want at a price you can afford is to use an experienced, professional real estate agent. All of us here at the Sullivan Group are ready to help you make the jump to home ownership. Contact my office at 703-222-3300 or speak with me directly on my cell at 703-268-6380, or by email at csullivanrealty@gmail.com.
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