Los Angeles Real Estate, How Much Home Can You Afford?
When you first begin considering the purchase of a piece of property, especially if it is your first home, the biggest question in your mind is probably “How much home can I afford?”.
That’s a question that needs an answer, before you even begin to look at homes. You need to learn to look at your financial situation the same way a lender will. I’m here to help you get started.
One of the most important parts of figuring out how much you can afford to spend on a home is to consider your income. You need to look at how much you are actually bringing home every week, not your actual salary. If your pay varies week to week, you will need several months of paycheck stubs, and possibly last year’s W2s to prove your average bring home amount.
If you are self-employed, this gets a bit trickier. You will probably need to show two years of W2s to prove your income. This number will be divided to get an average monthly income. Because you are able to deduct business expenses, you need to look at the actual profit listed in your tax return and use that number for your figures.
Once you have your total monthly income, you can work out your debt to income ratio. This is a two part process. First, take your monthly income and figure out what 33% of that amount is (multiply by .33). This is the amount of your income that can be used for paying a mortgage, following the FHA’s expense guidelines for mortgages. If you are earning $5,000 a week, you can afford to pay a mortgage payment of up to $1,650.
The second step is to figure out your monthly debt expenses. This includes other loans (car, student, ect.) and credit card amounts (and any other money you owe). Don’t include utilities or insurance premiums in this number. Ideally, this equals no more than 5% of your total monthly income. In our example above, this would be $250.
This total 38% (33% for housing, 5% for consumer debt) is the most that your lender will want you to be spending every month for these two expenses. If you have a higher amount of consumer debt, you will probably qualify for a smaller loan. This isn’t set in stone, and many lenders will accept higher levels of consumer debt, as long as they aren’t too high, if you can prove that you have the financial means to pay for them, and a strong track record in paying bills on time.
If you know what you can afford for a monthly mortgage payment, you can use a mortgage calculator to figure out your approximate price range when buying a home. Find an online mortgage calculator, input the amount you can pay each month, an estimate of interest rate, and the amount you have prepared for a down payment. That should give you the total amount you can afford to spend on a home.
This method won’t give you the exact numbers you’ll need, but it can get you started. Remember that homeowners insurance, private mortgage insurance (if applicable), homeowner’s association fees, and property taxes will also be figured into your monthly housing costs. If you want a better estimate, talk to a lender. He, or she, can give you a better idea of the numbers, for free, and you won’t be obligated to use them as your mortgage lender when you buy a home.
End the waiting game and let dollars roll in your pocket.
Request a free consultation with seasoned realtor Bruno Pisano at www.Los-Angeles-Homes.net
to find out how you can put your home for sale and rake in maximum profit for it.
You can’t go wrong with Pisano. This realtor needs no more than 39 days to close any home for sale deals.
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