I’m Pat Esswein of Kiplinger’s with some advice for folks who are thinking of buying a home.
Before you start shopping you need to know how much you can afford to pay for a house and
have a good idea of whether a lender will approved a mortgage for the amount you will need to
borrow. Lenders generally apply two guidelines; first you can spend 28 to 31% of your monthly
household income before you taxes on your mortgage. That amount includes loan principle,
interest, property taxes and household insurance. Second, you can spend between 30 and 40% of
your gross household income each month on all debt payments. Those include your mortgage,
credit cards, student loans, car loan, alimony and child support. The interest rate you qualified
for will also affect how much house you can buy.
Barrowers with credit scores of 740 or more and the down payment of 20% or more who are
buying a single family home will get the best rates. The higher the rate you must pay the bigger
the resulting monthly payment and the smaller you loan you will qualify for. That conventional
wisdom until recently has been let us good to barrow as much as lenders will let you because
you’re applying leverage. You get 100% of any price appreciation no matter how much or how
little of your own money you put down. That’s strategy can pay off when home prices arising
rapidly. But it can back fire when prices slept or rise slowly; you could end up only more on your
mortgage than your home is worth.
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