How much house can I afford?

The very first question anyone interested and ready to buy a home should be "How much home can I afford?". This questions should help you prepare for property showings. The main purpose is to give a range in home prices that you should be looking at.

Remember that home prices are not set in stone, and negotiable. So you may be able to find a more expensive home and negotiable the purchase price down to your purchasing power.

One other recommendation is to NEVER buy the maximum amount of home "MAX PRICE" that you can afford. If you do so, you will be placing yourself in a very tight budget. (There will be no room for error.).

So what are the criteria for knowing how much home you can afford?
When, I was going to try to put a calculator on this site, but haven't yet figured out how to do that.
Do a search for "How much home I can afford?" on Google, Yahoo, or your favorite search site.

You will notice that you will be asked to enter your Gross, not net salary.
You will be asked to enter your down payment, your anticipated interest rate on the loan, and estimated annual taxes & hazard insurance premiums.

Usually banks will approve you for a loan where your monthly payment is no more than 28% of your gross salary.
Lenders will usually not approve a loan where your monthly expenses for the home is any greater than 35% of your gross payment.

To clarity, your monthly payment on a mortgage payment is broken down into the following:

Principal & interest
Hazard insurance (Homeowner's insurnace)
Real Estate Taxes
Private Mortgage Insurance (If applicable)

Hazard insurance rates & real estate taxes vary from town to town, and state to state.
In order to get a better idea of what you can anticipate paying, you can always get free information.

For taxes, you can quickly and easily call the town the property is located in and ask to talk to the tax collector's office. They generally give out the tax rate on the property, and what the annual taxes are. (Or an estimate if the rate has not yet been set, but if that is the case, ask for last fiscal years real estate tax amount).

For hazard insurance estimates, you will have to call your favorite insurance agent and have them provide you a quote.

For hazard insurance coverage, the lender will want to make sure that your property either has "replacement cost coverage". It means that if your house disappeared off the face of the earth, they will cover the expense of rebuilding the property, to another of similar size and features.

The lender will at a minimum require that the property be covered for no less than the loan amount that they are providing you.
So that where the worst to happen, the bank gets its money bank, and you will be left holding the bag.

A note of caution: DO NOT OVER INSURE YOUR HOUSE.
What does this mean?
Its means that if you buy a home for $200,000.00, you do not need the same amount in coverage, unless your home will indeed cost exactly $200,000.00 to replace.
Don't forget that the price is usually broker down between two parts- The land and the actual real estate located on it.

The land can't disapear and therefore does not need to be insurred.

What about your real estate home price...only the actually building...

With home prices fluctuating year to year,let me explain.

There are a few different ways of viewing property value. First of all, what you are willing to pay for a house is the purchase price.
The lender obtains an appraisal of the property, which is an independent property value report to verify whether the home is really worth its value in money.

Even if you paid $200,000.00 for a home, the replacement cost may only be $145,000.00. (The missing $50,000.00 may be a premium that an individual is willing to pay to live in a particular part of the city.)

The opposite may also be true and you got yourself a great deal.

Anyhow, buying a home is a very important decision.

If you find it boring to take the time and learn about what you are getting yourself into, then your are setting yourself up for financial problems and a possible disaster.

Remember that anything worth doing is usually not quick or easy.

Did you consider this information useful.
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