One of the most important things to decide BEFORE you go shopping for a new house is how much you can afford to pay for it. This will save you umpteen hours looking at homes that you should not really be in the market for to begin with.
If you understand how lenders determine the mortgage you can afford by looking at your income, amount of deposit and total closing costs, you will have a better idea. Your total expenses will also come into play, since they will have an effect on how much income you have leftover to pay your home loan each month.
There are some rule of thumb ratios that many lenders use that take into account your income and expenses, debt ratios and closing costs, to decide what you can afford to pay for a home.
You can do these calculations yourself, or you can ask for the assistance of a mortgage consultant to do them for you.
In most cases, having enough down payment is the most difficult part of home ownership. Today, people don?t put aside a certain amount of money into a savings account to save up for something. No down payment loans are rarely granted today days, since they were such a big reason for the mortgage problems over the last few years.
A minimum of a 10% deposit will typically be demanded. For a home that costs $200,000, which is an average amount today, you will have to have saved at least $20,000, plus whatever amount you may need for closing costs. Lenders will be happy to give you an estimate of your closing costs.
A very low assumption should be that you have to make $25,000 available. Now the lender will ask whether you can make the monthly payments. You can visit many sites on the internet that will help you calculate what you can afford for a monthly home loan, or you can consult with a mortgage professional.
Typically, the standard used is that your housing costs should not be more than 25% of your income. However, if you have high credit card debt, it will affect this percentage. The remainder of your income above 25% should be devoted to clothing, utilities, savings, education and entertainment. A high credit card debt will mean that you will have that much less to use for your basic needs.
If you net $6,000 a month, you can afford a mortgage payment of about $1,500 (25%), barring any other large, fixed expenses. This is at least a jump off point for your shopping trip for a new house.