Can You Afford to Buy a House?
It is important to understand all the costs involved in buying and owning a home. Initial and ongoing expenses may include:
- down payment,
- homeowners insurance,
- closing cost,
- moving expense,
- purchase major appliances,
- landscape and pool maintenance expenses,
- general home maintenance,
To get a rough estimate of your buying power, multiply your annual gross income by 2.5. For example, if you had a household income of $100,000, you might be able to qualify for a $250,000 home.
The down payment
Down payments can range from 3 to 20% of the property value. What percentage that is will be determined by the type of mortgage you select.
You may be required to have Private Mortgage Insurance (PMI or MI) if your down payment is less than 20%.
Closing costs include:
These costs can range between 1-8% of the property value. An estimate of these costs should be provided for you from your lender.
- title insurance,
- financing costs,
- any items that must be prepaid,
- any items that must be escrowed,
- and other settlement costs.
Housing expense to income ratio
Your monthly mortgage payment should be less than or equal to about 30% of your gross monthly income. The percentage can change depending on the type of mortgage you choose.
Your expenses, such as credit card bills and car loans or any alimony and child support, should generally not be more than about 30-40% of your gross income.