Financial Facts: How much home can you afford?
I just got off the telephone with a first time homebuyer. He wanted to know if I thought he could afford to buy a home at this point in his life. He is a newlywed and has another year in school, plus he works full time. His wife has a good job and makes a decent income. Between the two of them they have $12,000.00 in the bank and they have one car payment and one credit card debt.
The first thing that I told him was to discuss with his wife the fact that a house payment might cause them stress each month when it comes time to make the payment. I have determined that from a pure financial aspect they can afford to buy a modest home. They have the credit history to get a decent interest rate and with all the low rates it makes a purchase very attractive.
On the other hand the new homeowners will be taking on the responsibility of not only paying the mortgage but all the maintenance that goes with owning a home. Since these potential buyers cannot afford to buy a new home that has all new appliances, a new roof and new everything else, they could be looking at expenses that can nickel and dime them to death.
As a first time homebuyer you need to look beyond the romantic thoughts of owning your own home. There are some real advantages of owning a home such as tax benefits, appreciation in value and the mental aspect of being a property owner. Then there is the possibility of plumbing problems, electrical problems, painting, and re-carpeting. Take it from someone that has had a roof leak in the middle of a big snowstorm home ownership is not always great.
So if you are prospective first time homebuyer sit down and make a list of the pros and cons of home ownership. Owning a home is much more than dollars and cents. Owning a home can be a way to relieve stress by painting a room or cleaning the gutters. It can also be a cause of stress if a pipe freezes or a drain clogs.
As to the financial side of homeownership here is a simple and quick way to determine if your personal financial situation will allow for the purchase. The first thing to do is make a list of all of your debts. Car payments, credit card payments, alimony, child support, court ordered payments, and student loans are all part of this list. Then determine the minimum payment required and add up those figures. This is the minimum payments you have to make each month. Add to that the estimated mortgage payment and be sure to include the principal, interest, real estate taxes and homeowners insurance.
Now divide that bottom line figure into your gross monthly income. If your debt to income ratio is less than thirty five percent you should be in good shape. If your debt to income ratio is sixty percent you are in bad shape.
To be sure contact your friendly neighborhood mortgage professional to learn what you buying potential can be. Do this step first and then you can rest assured that you look in the right price range and to be sure you are right for home ownership.
Bob Kieber can be reached at (970) 262-1199 or at email@example.com. He is a local mortgage lender and principal of Resort Lending.
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