HOW MUCH HOUSE CAN YOU AFFORD?
By DR. RUTH MIRON-SCHLEIDER
Recipient of NJAR Circle of Excellence Award
1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010
Recipient of NJAR Circle of Excellence Award
1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010
Are you tired of writing another monthly rental check without building equity or benefiting from the joys of owning? If you are a first-time home buyer, unfamiliar with the expenses involved in purchasing and maintaining a home, the following general guideline should help.
1. DOWN PAYMENT
Generally, a buyer pays part of the total purchase price in the form of a down payment. The amount can vary greatly and is usually paid in three installments. The first, usually $1,000.00, accompanies the offer to purchase. The second is generally expected by the tenth day after your offer has been accepted. The first two installments usually add up to 10 percent of the home’s purchase price. The remainder of the down payment is due at closing. Remember, you will need to set aside sufficient funds to cover closing costs, legal fees, moving expenses, and maintenance costs for the new house.
2. CLOSING COSTS
There are four major categories of closing costs:
- Applying for and processing mortgage application.
- Legal fees and title costs.
- Insurance, escrow, and per diem interest (on loan).
- Certifications and inspections.
3. MORTGAGE PAYMENTS
Your monthly mortgage finance payments will include principal, interest, and taxes. If your loan exceeds 80% of the purchase price, lenders will also require private mortgage insurance. In qualifying buyers for a loan, lenders use several general rules of thumb. First, the total purchase price should not exceed 2 ½ times your annual income. Some lenders use the mortgage amount (the total purchase price minus the down payment), not the purchase price, for this calculation.
Next, the lender looks at two other calculations:
- First, that the monthly payment for principal, interest, taxes, and insurance should not exceed 28% of your gross monthly income.
- Second, that your monthly payment for principal, interest, taxes, and insurance plus all your other monthly debts should not exceed 36% of your gross monthly income.
There are many types of mortgage programs (such as FNMA, FHA, VA) as well as a variety of features. Shopping for the right loan can save you thousands of dollars over the life of your mortgage. Also, bear in mind that because tax rates differ from town to town, you could afford more house in a town with a lower tax rate.
4. MAINTENANCE COSTS
Maintaining your new home will involve regular expenses, such as water, heat, electricity, and homeowners’ insurance, as well as other expenses resulting from normal wear and tear. Yearly maintenance costs often average 10% of the home’s purchase price, but vary greatly depending upon the age of the house, the family’s needs, and how capable the homeowner is to do-it-him/herself.
Choosing the right home for you and your family is an important milestone. The right realtor will work closely with you and will be able to recommend other professionals you need, such as mortgage brokers, inspection engineers, and attorneys. A realtor’s function should be to coordinate and oversee all aspects of your transaction, from A to Z.
Good luck and happy home ownership!!!
Ruth Miron-Schleider, a 33-year resident of Bergen County, is a Certified Residential Specialist, an e-PRO Internet Professional and an Accredited Buyer Representative. She is a member of the Eastern Bergen Board of REALTORS®, National Association of Counselors, the Senior Advantage Real Estate Council, and the Graduate Realtor Institute. For a complimentary consultation, call her at MIRON PROPERTIES, 201.266.8555, or contact Ruth via e-mail: Miron@MironProperties.com.
Information deemed reliable but not guaranteed, subject to errors and omissions.
No parts of these articles may be reproduced in any form or by any means without written permission of the author.
