MONEY – HOW MUCH HOUSE CAN YOU AFFORD?

Six Easy First Steps To Find Out What Price House You Can Afford
Finding what price house you can afford to buy can be a time-consuming process of calling on several lenders, collecting data on various current mortgage rates and reviewing your finances with several lending officers.

Fortunately, there's an easy way around all this. With a few simple steps, you can figure out for yourself the approximate mortgage amount a lender is apt to approve for you. That amount, plus the amount of your down payment, gives you the price range of homes you are qualified to buy. We call this exercise "pre-qualification."

First, you need to find what interest rate is currently being charged for 30-year fixed rate loans. But, instead of phoning several lenders, you can simply give us a call. We make it our business to have the latest information on lenders' rates and financing packages right at hand.

Mortgage Loan Amount Estimator
The following table Illustrates how your mortgage amount will vary, at different Interest rates, even though your affordable monthly principal and Interest payment remains the same (Step 6 of the accompanying story). Add your qualified mortgage amount to your down payment to calculate your approximate home price range.

Affordable Mortgage Amounts Over 30 Years

Monthly

Payment       7%              8%              9%               10%             11%             12%

(PI)

$ 600     90,200     81,800     74,600     68,400     63,000     58,200

   800   120,200   109,100     99,450     91,200     84,000     77,600

1,000   150,200   136,400   124,300   114,000   105,000     97,000

1,200   180,200   163,700   149,150   136.800   126,000   116,400

1,400   210,200   191,000   174,000   159,600   147,000   135,800

1,600   240,200   218,300   198,850   182,400   168,000   155,200

1,800   270,200   245,600   223,700   205,200   189,000   174,600

2,000   300,200   272,900   248,550   228,000   210,000   194,000

2,200   330,200   300,200   273,400   250.800   231,000   213,400

2,400   360,200   327,500   298,250   273,600   252,000   232,800

Figures are approximate for a 30-year fixed monthly payment mortgage after a down payment of 10°h. Taxes, homeowners or condominium tees and insurance costs are not included in monthly payment figures.

Next, apply the following do-it-yourself system to zero in on the approximate mortgage amount lenders are likely to approve:

1. Calculate your gross monthly income - the amount you make before deductions. Add your spouse's gross monthly income, if any.
   
2. Multiply the income amount by 36% (.36). This is called the “debt ratio”.
   
3. Then subtract long-term monthly debts  (more than 10 months), such as car loan payments, personal loans, alimony, child support or regular payments toward a credit card balance. This is the generally-accepted standard lenders use to determine what borrowers can afford, after a down payment of 10%. Some lenders and mortgage plans apply more or less strict factors, such as 33% with a 5% down payment or 38% with a 20% down payment.
   
4. Also, many lenders calculate a "housing ratio" of 28% times gross monthly income. The result does not take into account long-term monthly debts. To qualify for a mortgage, lenders may require ratios of, say, 28/36. The first number means the maximum mortgage payment you qualify for could be up to 28% of gross income (.28); the second number means the maximum mortgage payment plus monthly debts could be up to 36% of gross income (.36).
   
5. Take a "guesstimate" of average annual real estate taxes in your area, plus the annual cost of homeowner's insurance. Divide by 12 to obtain a monthly figure. (On average, the monthly cost of these two items might be about one-tenth of 1% of the house purchase price. Ask us about your specific situation.)
   
6. Deduct the monthly taxes and insurance cost from both figures you arrived at in Step 3 and Step 4. The result is the ballpark monthly payment on principal and interest you can afford to pay on a mortgage.
   With the amount of principal and interest (PI) payment you can make in hand, we can calculate the amount of mortgage you can obtain, at various rates. Or you can find the approximate answer for yourself in the table.
   We'd be happy to discuss the many alternative mortgage plans-besides the 30-year fixed rate-that can dramatically increase the home price you can afford.

Remember, the price range of homes you can afford is figured after a down payment is added to your qualified loan amount. In addition, you'll need to set aside an amount for closing costs and point payments. Ask us how much these may amount to in your specific situation.

What Is P LT.L?
Principal, Interest, Taxes, Insurance. These are the four elements that make up the usual monthly mortgage payment. These costs are often called "carrying charges." Although lenders qualify borrowers based on P.I.T.I., smart buyers also allocate income to meet maintenance, utility costs and any homeowner's or condominium fees in addition.