much can you afford?
how much you can afford is one of the most important rules of home
buying. Depending on your individual situation, your budget can
affect everything from the neighborhoods where you look, to the
size of the house, and even what type of financing you choose.
in mind, however, that lenders will look at more than just your
income to determine the size of the loan. Likewise, you may find
that there are some creative financing options that can help boost
your purchasing power.
prequalification vs. preapproval
One of the best ways to determine your budget is to have your real
estate agent or lender prequalify you for a loan. Prequalification
is different from preapproval, because it is only an estimate of
what you'll be able to afford. On the other hand, preapproval is
a more formal process where a lender examines your finances and
agrees in advance to loan you money up to a specified amount.
factors are important to lenders?
Banks and lending institutions will use several criteria to determine
how much money they'll agree to lend. These include:
gross monthly income
amount of your outstanding debts
Your savings--or the amount of money you have available for a
down payment and closing costs
choice of mortgage (i.e. 30-year, FHA, etc.)
Two important ratios
Lenders also use your financial information to figure out two, very
important ratios: the debt-to-income ratio and the housing expense
Many lenders use a rule of thumb that the amount of debt you are
paying on each month (car payment, student loan, credit card, etc,)
shouldn't exceed more than 36 percent of your gross monthly income.
FHA loans are slightly more lenient.
It is generally difficult to obtain a loan if the mortgage payment
will be more than 28 to 33 percent of your gross monthly income.
payments make a difference
If you can make a large down payment, lenders may be more lenient
with their qualifying ratios. For example, a person with a 20 percent
down payment may be qualified with the 33 percent housing expense
ratio, while someone with a 5 percent down payment is held to the
stricter 28 percent ratio.
ways to improve your purchasing power
If you're having trouble saving money, many lenders will allow you
to use gift funds for the down payment and closing costs. However,
most lenders require a "gift letter" stating the gift
doesn't have to be repaid, and will also require you to pay at least
a portion of the down payment with your own cash.
Negotiating Closing Costs
Through negotiation, some sellers may agree to pay all or most of
your closing costs (for example, if you agree to meet their full
asking price). If you choose to try this, make sure to ask your
real estate agent for advice.
Some homebuyers choose Adjustable Rate Mortgages (ARMs) because
of low initial interest rates. Others elect fixed 30-year loans
because they have lower monthly payments than 15-year loans. There
are significant differences between different loans, so make sure
to discuss the pros and cons of different loans with your agent
or lender before making a decision.
Bridgewater Savings offers a broad
portfolio of finance plans for every buyer. Check out their offerings
before you go anywhere! You will be pleased that you did. Click the Logo:
You might also try, Bristol County Savings if this is more convenient for you. Click the Logo: