There
is a rule of thumb that says that if you have the capacity
to repay the mortgage, you can afford a single-family
house that costs up to two and one-half times your annual
gross income. (Annual gross income is the amount you make
before taxes are deducted). Like other rules of thumb,
this is general idea of how large a mortgage you can afford
in Saratoga CA. But, because it is so
simple, it doesn't take into account all the information
that will help you feel comfortable with your mortgage
payments.
If you are buying a house with someone else (spouse, parent,
adult child, partner/companion, brother or sister or other
relative), you should consider your co-purchaser's earnings
and existing debts as well. Remember, if you apply for
a loan with somebody else, you and your coborrower are
both legally responsible for repayment of the mortgage.
Your buying power depends on how much you have available
for the down payment and how much a financial institution
will agree to lend you.
Your
down payment
If you are a first-time home buyer, the price you can
afford to pay for a house may well be limited by your
ability to come up with the required down payment and
closing costs. If you haven't accumulated much savings,
you may want to set aside funds for a down payment on
a regular basis from your paycheck. Monies in your checking
and savings accounts, mutual funds, stocks and bonds,
the cash value of your life insurance policy, and gifts
from parents or other relatives may all be suitable sources
for a down payment.
Private
Mortgage Insurance
Depending on the lender and loan type, you may be able
to get a mortgage with as little as 3 percent or 5 percent
down. However, putting less than 20 percent down often
means you will be required to purchase private mortgage
insurance. Private Mortgage Insurance (PMI) helps protect
the lending institution in case you fail to make payments
on your mortgage.
Avoiding
PMI
It is possible to get financing with 0-10% down and not
pay PMI (Private Mortgage Insurance). This is why 80-10-10
financing was created. It is called 80-10-10 because a
lender provides a traditional 80% first mortgage, a 10%
second mortgage, and makes a cash down payment equal to
10% of the home’s purchase price. The same principle
applies if the borrower can only afford to make a 5% down
payment. 80- 15-5 financing is also available.
Your closing costs
In addition to the down payment, you will also need to
consider closing costs. The closing is the final step
during which ownership of the house is transferred to
you. The purpose of the closing is to make sure the property
is ready and able to be transferred from the seller to
you.
Closing costs generally range from 3 percent to 6 percent
of the amount of the mortgage. So, if you were to buy
a $100,000 house with a 5 percent ($5,000) down payment,
you could expect to pay between $2,850 and $5,700 on your
$95,000 mortgage. Sometimes, you can negotiate with the
seller of a property to pay some of your closing costs,
which will reduce the amount of money you will need to
bring to closing.
How
much a financial institution will lend you
Apart from having available funds for a down payment and
closing costs, the other major factor limiting how expensive
a house you can buy will be how much you can borrow.
When you apply for a mortgage, the lender will consider
both your earnings and your existing debts in determining
the size of your loan. Lenders generally use the following
two qualifying guidelines to determine what size mortgage
you are eligible for:
The amount of money you owe for mortgage payments, property
taxes, insurance, and condominium or co-op fee, if applicable,
should total no more than 28 percent of your monthly gross
(before-tax) income. This is called the Housing Expense
Ratio. The amount of money you owe for the above items
plus other long-term debts should total no more than 36
percent of your monthly gross income. This is called the
total Debt-to-Income Ratio.
Basically, lenders are saying that a household should
spend no more than about one-fourth of its income (up
to 28 percent) on housing and no more than about one-third
of its income (up to 36 percent) on total indebtedness
(housing plus other debts). Lenders feel that if they
follow these guidelines, homeowners will be able to pay
off their mortgages fairly comfortably.
These lender ratios are flexible guidelines. If you have
a consistent record of paying rent that is very close
in amount to your proposed monthly mortgage payments or
if you make a large down payment, you may be able to use
somewhat higher ratios. Some lenders offer special loans
for low- and moderate-income home buyers that allow them
to use as much as 33 percent of their gross monthly income
for housing expenses and 38 percent for total debt.
Don’t Despair, There
is a Loan For You
When you go to apply for a mortgage, the lender will use
all the relevant data -- your income, your existing debts,
the purchase price of the house, your down payment, the
interest rate on the loan, and the cost of property taxes
and insurance -- and calculate whether you qualify to
borrow the amount of money you need to buy the house.
Contact
us for more info on what you can afford in Saratoga
California. |
Finding
a Saratoga Realtor
My
Promise
Benefits
of a Buyer's Agent
Buying a Saratoga
Home
Should
You Own
Stop
Paying Rent
Ways
to Save Buying Your Home
Ways
to Hold Title
First
Home
Getting
Prepared
First
Time Buyers
Renting
vs. Owning
How
Much Do I Need?
What
Can I Afford?
Income
vs. Debt Ratios
Estimate
Your Buying Power
Understanding
Credit Scores
Examining
Credit History
Getting
Pre-Approved
Ways
To Save
Finding A Property
Ready
To Find A Property?
Online Property Search
Identify
Your Points Of Interest
Visiting
Saratoga Open Homes
Property
Checklist
Other
Considerations
Making an Offer
Basics
Of Making An Offer
Purchase
Agreement
What
You Need To Know
Negotiating
How
Much Should I Offer?
Finding a Home Loan
What
Is A Mortgage?
Typical
Mortgage Providers
Choosing
A Mortgage
Fixed
Rate Mortgages
Adjustable
Rate Mortgages
Common
Questions
Loan
Applications
Loan
Application Checklist
The
Underwriter
Included In My Mortgage Payments?
Your
Rights As A Consumer
Closing The Deal
What
Is Escrow?
The
Sale Process
Your
Responsibilities
Disclosures
101
Ways
to Hold Title
The
Loan Process
Closing
Costs
Who
Pays What?
The
Escrow Process
Property
Tax and Saratoga Tax Calendar
Misc
Understanding
Foreclosure
Secrets
Lenders Don't Want You To Know |
Saratoga
MLS Search