When starting to search for a new house one of the most important items to know is how much you'd like to spend. Sure you'd like to spend one dollar, so let me rephrase that. How much would you realistically like to spend? Fannie Mae underwriting guidelines use a "Debt to Income" ratio (DTI) when approving a loan. Currently they cap the DTI at 41%. DTI is based on monthly debt to monthly income. So to figure how much you can spend on a house payment multiply your monthly income by 41% and subtract your non-housing monthly payments (car loan, credit cards, student loans) from that amount. The result is what you could spend on housing and be approved for a mortgage.
I've emphasized 'could' as that doesn't mean you should spend that much, but that's the maximum the guidelines would allow. Now that you know what you have to spend on a house you'll need to decide what payment amount you'd be comfortable with. The last thing you want to do is to get into a situation where all your income is going out each month and you don't have extra for savings, retirement, travel, etc.
After you decide on a good number you can use the following to figure out a home price. A mortgage payment (including taxes and insurance) is roughly just less than 1% of the sales price. So if you'de like a payment of $1800 that would be for a roughly $200,000 house. These are rough numbers as interest rate, taxes and down payment are all TBD. For an accurate quote please email me, I'm happy to run some numbers for you.
The next thing to think about is since you've found a price range, can you get what you want in that price range? I'll be covering this next month so be sure to stop by my blog in early May.
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1 comment:
Great article.
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