Financial, Uncategorized

How Big a Mortgage Can You Really Afford?

Whether you’re a first-time home buyer, you’ve grown out of your current home or maybe you’re looking to downsize after the kids have left home, you may be scratching your head and wondering just how much home you can afford. Home ownership should offer you a feeling of security, not leave you feeling destitute!

So why not just go by lenders guidelines and borrow what they deem appropriate? Well, a mortgage lender won’t take into account your current and future financial goals. Do you plan to have children? You’ll need to factor in childcare costs or maybe the loss of income of one spouse. Maybe you want to return to school eventually. All of these things must be considered!

Old rules generally said you can afford a house 2-3 times your income. So if you earned $100,000 annually, you’d be able to afford a $200,000 – $300,000 home. But what if you have $1,500 a month in car payments, student loan payments, credit card bills? The best way to break down those sort of expenses that are of utmost importance is to make a detailed budget. Factor in things like mortgage payment, homeowners insurance, taxes, HOA fees, utilities, etc.

Now, a huge part of how big of a monthly payment you’ll have is how much of a down payment you can afford. The larger the down  payment, the lower the monthly expense. Many lenders also require private mortgage insurance (PMI) on loans with less than 20% down. You also have to factor in what sort of market it is – if you wait around trying to save, you may end up paying more for a home.

Take into account your monthly debt. Most lenders play by the “43% rule.” So using the $100,000 scenario above, we come to $43,000 in annual income. Divide that by 12 and we get $3,583. That means all bills, mortgage included, shouldn’t exceed that number.

Use your monthly rent as a guideline. Tax benefits of home ownership allow you to spend about 1/3 more than your rent. So if you’re currently spending about $1,500 a month on rent and you’re not struggling to make ends meet, you should be able to comfortably afford about $2,000 a month on a mortgage payment.

 

Financial

Heading In The Right Direction: Steps For Good Credit

howtogetcurbappeal

For homeowner hopefuls, getting approved for a mortgage can seem like a daunting task. One reason for this potential looming cloud is an unimpressive credit score that a potential buyer feels is holding them back. Most buyers worry about the actual number of their credit score and what it means to mortgage companies. In reality, what buyers should be focused on is the direction of their credit score.

There are several ways to get your credit score going in the right direction and improving your chances of getting approved for a mortgage.

1) Apply for a credit card: For people who do not have one yet and are looking to build some sort of credit, a credit card is a great way to begin laying the foundation. However, use the credit card sparingly as to avoid over-spending. Perhaps designate certain purchases for the card like filling up your gas tank or buying groceries every week. This will allow you to build manageable credit that can be easily paid off at the end of the month.

2) Pay your bills and pay them on time: It may seem obvious but perhaps you became insanely busy this month or it simply slipped your mind that your electric bill was due 5 days ago. Even a few days late on a payment can send your credit score heading in the wrong direction. If you find yourself being overwhelmed by due dates, consider signing up for online bill-pay which allows you to set up automatic payment. This way, the funds simply come out of your account and there is no chance of a missed or late payment. If you are not a fan of paperless billing, that’s fine too. Consider getting yourself a calendar and marking down when payments are due or marking a few days in advance to ensure the payment gets in the mail on time.

3) Check Your Credit Score: You can’t fix something when you don’t know what is bringing you down. Make sure you are getting your report from a credible source to ensure it is correct. Once you have a chance to look it over, figure out what items on your report are affecting your score the most and set a goal to handle those areas first.

4) Clean Up Your Credit Score: Usually, old information is taken off your credit report after 7 years but there are some cases where you can request to have the information removed before the 7 years is up, if it’s damaging to your current credit. Be sure to look over your report carefully and report any differences between your records and those of your credit report.

With that being said, your credit score does play a role in your ability to be pre-approved for a mortgage or any other loan for that matter. However, if you are dissatisfied with your current score, you must learn what can be done to push that number in a positive direction. If you follow these simple steps, you will see your number start to change for the better. It may not shoot up 50 points right away but you are building a better foundation for your future credit, which your future self with thank you for.