Your Dream Home ~ What Can You Afford?
So you just got back from house-hunting and you and your family are very excited about this beautiful four bedroom home with cathedral ceilings and a patio with a built in spa. No wonder, it's got every single thing you want in a houseÝ enough bedrooms, an oversized kitchen, a huge family room, a great big yard and so much more. Everything about this house is so perfect!
Well, except for one thing: the cost. It"s about $100,000 more than you want to spend. Which brings up to the crux of this article. How much home can you really afford? Let's start with what you are looking for in a house.
First off, your dream house is (or should be) the one that matches both your finances and your fantasies. This starts with the down payment. For most first time buyers, this is the biggest hurdle. Lending institutions try to get you to plunk down anywhere from 5% to 20% of the home"s purchasing price in cash. But that"s just for starters. They also expect you to have the money for closing costs, loan fees, attorney"s fees, inspection fees, and a title search. All totaled, these additional fees can be as much as 5% of the home's price.
Simply put, if a house is selling for $120,000, you can pretty well plan on forking over at least $18,000 in cash (based on a 10% down payment and 5% in closing costs). If your lender insists on 20% down, you may need to search for another lender.
To figure out how much you can spend on a house, all you need to do is to follow these rather simple guidelines:
A home's price should be no more than 2 1/2 times your household's annual gross income. If you and your spouse are making a combined annual income of $50,000, you can afford to pay $125,000 for a home. However, this is dependant on the total monthly payments coming to less than about $950, or roughly $750 a month mortgage payments and $200 for insurance and taxes.
Making your payments will depend on how much debt you already have. Some of the things that can affect you are: high credit-card balances, long-term debts, student loans and alimony. If all these debts, combined with your monthly household expenses total less than 36% of your gross household income, you will qualify for the loan.
If your budget is too tight for buying a house under a conventional loan, there's still hope. With some lenders, you may be able to buy with a smaller down payment or, in some cases, none at all. If you are a veteran, if you qualify, you won't have to make a down payment. Check out the FHA who offers down payments as little as 3%-5%. Also ask lenders about Fannie Mae and their Federal Loan Mortgage Corporation, known as Fannie Mac. They offer other mortgages to cash-strapped home buyers.
First time buyers can withdraw up to $10,000 from their individual Retirement Accounts (IRA) penalty-free to help cover the costs of buying a first home.
Financing Your Home >Bridge Loans
What if you hear one day that the house you have coveted for years is on the market. Out of curiosity, you might call your real estate agent and arrange to see if the inside of your dream house is as terrific as the outside. It is, and you fall in love with the place. The sellers need a relatively fast settlement, and are not in a position to accept an offer that is contingent on selling your home before closing on the new one. While you are confident your house will sell fairly quickly, you cannot be sure in a fluctuating market.
A bridge loan might be your solution. Many lenders specialize in providing short term loans for just this type of situation. The principal and interest is paid back when you close the sale of your present house. If the market in your area is strong and there is a good possibility of selling your home quickly, or if you are willing to offer your home at a price that will make it attractive in a sluggish market, then a bridge loan is a tool that could make the home you love a real possibility. A good real estate agent and a knowledgeable loan officer are the team you need to work it out.
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Legend has it that when Brigham Young first saw this city in 1847, he exclaimed: "This is the place!"
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Salt Lake City, Utah. |
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