Monthly Archives: March 2008

How Much Home Can You Really Afford???

So you’ve been paying $1000 a month rent for the last 3 years and with the current low  interest rates, you decide it’s time to put that money towards the purchase of a new home.  Deciding  what you should spend can be tricky- most first time homebuyers tend to lean towards more elaborate  features, and tons of space, instead of choosing a home that can be a stepping stone for them, with a comfortable amount of space. It’s your realtor and loan officer’s responsibility to guide you toward a home that fits your comfort level and makes financial sense for you, but it is up to you to determine how much you should spend. Ok, your loan officer says you are approved to purchase a 150k home, but what kind of payment is that, and what factors make up that monthly payment? If you are not putting down 20% on your home, you will have a monthly mortgage payment or PITI payment, which includes the principal, interest, taxes, and insurance. A safe way to determine what that approximate monthly payment is, is to take 1% of the total sales price of the home, for example: a 150k home would be approximately $1500 a month total payment. This is an estimate to help you initially when you begin your home search, however, how much home you can afford is determined by how much you can borrow, and how much money you have.- with your credit score being a key factor. So what is included in your monthly payment or PITI payment?

 

PITI

 

Principal = This is your loan amount not including interest.

Interest =  Money the bank charges for the use of their money.

Taxes or Property Taxes = Tax levied on the property, usually dependent on the value of the property.

Insurance or Private Mortgage Insurance = Insurance paid to the bank or holder of your loan in the event you default on the loan.  This insurance is charged until there is at least a 20% equity position in the property through your payments, appreciation or a combination of both.

 

30 Year 150k Loan @ 2.58 Tax Rate Example

 

Principal                  Interest                        Taxes                   Insurance

$150,000 = 998.00  @ 7.00%                         $325.00                    $125.00

 

≈ $1500 Monthly Payment

 

In the end, what you can really afford depends or your lifestyle, income, family size and goals. So you think you are ready to put that $1000 to good use? Houston definitely has many options for you

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