Tuesday, February 5, 2013

Know your Limits and Have a Down Payment

Yesterday we discussed the general rule for figuring out how much you can afford to spend a home is 3 times your annual salary.  Today we learn that a mortgage payment should not exceed 28% of monthly income and that total bills (mortgage included) should not exceed 36% of monthly income.  So...if you make $6,000 a month--your mortgage payment should not be more than $1,680.  Obviously not everyone follows this rule but it is definitely a good rule of thumb.

Today we also discuss the importance of a down payment.  Without a downpayment saved you have no way of financing a house (unless you're a Veteran and qualify for a VA loan).  FHA loans require a 3.5% downpayment while conventional loans generally require 5% down.  20% is ideal because at 20% you are no longer required to may PMI (private mortgage insurance)

I would like to state that I am a Realtor and not a mortgage lender.  I leave the lending questions and in-depth analysis up to the professionals like Cindy Cushman of HomeServices Lending.

Here is an example of what the breakdown to mortgage payment would look like on a house purchased for $125,000 comparing the different avenues of financing.

This was a lot of information covered for one day so I'll stop there...but I'll be back tomorrow for Day 3 of "The Path to Owning Your First Home"!

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