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If you’re like many first-time homebuyers, chances are you’ve been spending your weekends driving around visiting open houses and new model homes. This is a great way to get a feel for what you want. The problem is that what you want isn’t always what you should get.
Before you start touring homes for sale, it’s important to start off with a budget so you know how much you can afford to spend. Knowing what mortgage payment you can handle will also help you narrow the field so you don’t waste precious time touring homes that are out of your reach.
Where to begin
The key factor in figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it’s expressed as a percentage.
The ideal ratio
Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 28 percent of your gross monthly income goes to housing expenses.
Doing the math
First, figure out how much total debt you (and your spouse, if applicable) can carry with a 36 percent ratio. READ MORE OF THIS ARTICLE
By Don Johnson, Broker/Owner/CEO
The Don Johnson Realty Group
MURRIETA, CA – Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.
Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.
The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!
However, if you were to purchase your own home or condominium, you would be on your way toward building equity. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop lower than the rate you’d currently be locked in at, and this would cause your monthly mortgage commitment to go down.
And not only would your own home give you added space, your own back yard and overall privacy—home ownership would also give you some tax advantages. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.
To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.
There are many different types of loan programs available, including “low” down payment mortgage programs. The most common and beneficial loan for people buying their first home is the FHA loan, which only requires a 3.5% down payment. In addition, FHA allows a seller to cover up to 6% of a buyer’s closing costs which really helps decrease the amount of money it takes to buy a home. Many people also don’t know that FHA allows the lowest credit scores of any loan available today, only needing a 640 score in most cases.
If there is any time to buy it is NOW! Why? Because home prices are low today. Low home values are surely not good for people selling homes but they are great news for people wanting to buy a home. Don’t miss this opportunity to take advantage of the current market before home values rise. Call me today for a free consultation: 714-856-3992.
Don Johnson, a Licensed Broker with the California Department of Real Estate, is the owner of Don Johnson Realty Group DRE#01398835, a resale real estate brokerage located in Murrieta, California. We specialize in short sales, rental properties, foreclosures and mortgage lending. If you would like to obtain more information, please contact Don at email@example.com or call 714-856-3992. http://www.djrealtygroup.com
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When it comes to renting a place to live, tenants often find it easy to team up with a friend or roommate to share the cost of rent and expenses as well as have someone to talk with in the downtime spent at home.
Assuming that you have a full time job and no social life, you spend approximately 128 hours per week in your home. Of those 128 hours, 56 are probably spent sleeping, leaving you with 72 hours of downtime spent in your home cooking, cleaning, watching television, surfing the Internet or just killing time chatting with your roommate.
Life is good until you find yourself at odds with your roomie because they won’t pay their share of the expenses. Or maybe they pay their part of the rent late all of the time, hurting your good credit rating. Or perhaps they are just downright annoying and leave a mess everywhere in the house. This can leave you frustrated and ready to pack up and leave. However, you need to think it through before you throw in the towel.
There are a few ways to avoid the roommate fallout if you plan ahead.
- First, write out a pros and cons list of having a roommate vs. living alone.
- If you decide to go ahead with pursuing a joint lease, then have a heart-to-heart chat with your potential roommate about how the bills will be paid and when. Discuss who will take care of what household responsibilities and have a general understanding BEFORE signing the lease.
- And last, understand that your landlord is not your referee, mediator, judge or jury if you end up having a dispute with your roommate. Keep in mind that if you do have a parting of the ways, you may still be liable for the remainder of the lease and fulfilling the terms. This includes any damages that are done to the property, whether or not you lived there. If your name is still on the lease, you are still responsible for the rent being paid on time and the property being taken care of.
It may be best if you just suck it up and call a truce with your roommate until the lease is up. After all, part of the security deposit refund is probably on the line and 72 hours of downtime a week is a lot of time.