Can I Afford That Home?

Buying a / home is a major financial decision. Just because a mortgage company says you qualify for a specific amount doesn't mean you HAVE to spend that much. In fact, with the Homes for Heroes Program, you won't have to worry about breaking the bank to achieve your goals of homeownership. There are several factors to mull over when you are trying to decide if you can afford that Washington DC home.

In general, financial experts recommend that you don't spend more than two to three times your annual gross household income on a home. For example, if your total annual income (before taxes) for you and your spouse is $90,000, you should be able to comfortably afford a mortgage payment on a home priced between $180,000 to $270,000. If you qualify for a home in the Homes for Heroes Program, you can actually look at homes that are traditionally priced even higher and still stay within that price window after your discounts are factored in. To determine what your comfort zone is, you should sit down and tally your monthly expenses and then add in what the usual costs of homeownership are: mortgage payment, taxes, insurance, HOA fees (if applicable), etc.

How much are you going to be putting down on your / home? The higher your downpayment, the less you have to borrow and the less your monthly mortgage payment will be. Also, if you put at least 20% down, you won't have to pay Private Mortgage Insurance (PMI), which is required by every mortgage company when borrowing more than 80% of the home's purchase price. The lower your downpayment, the higher your monthly mortgage payment will be.

If you are currently renting a / home, you can use your rent payment as a guide for what you can afford for your monthly mortgage payment. Homeowners receive certain tax benefits that renters do not. When you factor in these benefits, you can actually afford a payment about 1/3 more per month than you currently pay in rent (which includes your mortgage payment, taxes and insurance) without any change in your lifestyle at all. That means, if you currently pay $1200 per month for rent, you can actually afford 1.33 times that amount for your mortgage payment (or $1596 per month). However, if you're having trouble paying that $1200 per month, you should look for a Homes for Heroes home that can fit comfortably within your budget.

Lastly, look at your total debt. Mortgage lenders are using the 28/41 rule for determining whether a buyer is a good candidate. Your monthly payment, which includes the principal, interest, insurance and taxes shouldn't be more than 28% of your gross income. In turn, this number plus all your other debts (car loans/leases, credit cards, student loans, etc) should not equal more than 41% of your gross household income. If your debt falls outside these numbers, you may find yourself struggling to make your monthly mortgage payment. That definitely does not make for a happy homeowner.

Take the time to consider these steps in determining if you can afford a / home. If you are a military serviceman, teacher, healthcare worker, fireman or policeman, I may be able to help you find your dream / home at a drastically reduced price through the Homes for Heroes Program. Just ask me how. I'd love to help you, especially since you do so much for the betterment of our community.

FEATURED PROPERTY OF THE WEEK

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Originally posted on my Homes for Heroes DC real estate blog here: http://homesforheroesdc.com/2012/04/17/afford-home/.