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Buying Tips

What is the buying power…

Buying a home is a long-term financial commitment and prior to going out house hunting, do not overlook that buying a home is accompanied by closing costs, mortgage payments, home insurance, taxes, and the periodic maintenance. Before committing, it is significant to first examine the spending, the lifestyle, and the resources.

Tudor Home With A Turret

© Sholderfield | DT

For every first-time homebuyer, determining how much of a home can be afforded could be achieved in three simple steps. The first step is to consult with an approved lender. The lender will take into consideration the income, debt, credit history, and money reserves to establish how much of a home loan meets the budget. However, keep in mind that just because the lender provides a qualification for certain amount, it does not mean that the full amount should be borrowed. It is not clever to be house rich and cash poor.

The second step is to sit down and conduct calculations. In most cases the common rule is to account only with no more than 28% of the gross monthly income towards the home payments, which includes the loan principal and interest, hazard insurance, property taxes, and homeowners association dues, if applicable. With that scenario, a household with a yearly gross income of $72,000 should not spend more than $1,680 on housing expenses.

However, this calculation does not include other debts, such as car loans, credit-card payments and other financial obligations. For that reason, the debt-to-income ratio should not exceed go above 36%. By this calculation, the same borrower needs to make certain that he or she does not spend more than $2,160 on housing expenses and all other debt.

Portrait of Family

© Jkha | DT

Accounting for the lifestyle is the third and final step. A household that prefers to eat out at restaurants and spend on expensive trips may not be thinking as much in housing as a household that chooses home cooked meals and enjoy vacation time relaxing in the backyard. To that effect, it is recommended to take stock of the monthly expenses and add the potential housing costs to calculate what buying a home will affect the total household budget.

Obviously, the costs of owning a home go beyond the expectable monthly payments. Glitches come up, so a cushion for unforeseen items is needed, in case the A/C stops working or a pipe leak in the master bedroom. Do not forget that once a house is bought, the house is also owned.