Everyone needs a place to live! Let's make sure your name is on the Deed Of Trust.
“What can I afford?”
Your buying power is comprised of the total amount of money you have available each month for housing costs. This means the money you have each month after fixed bills, savings, and expenses.
- How much money have you saved for a down payment?
- Will there be proceeds from the sale of your current home?
- Do you know the amount of money you’re qualified to borrow?
- What Is Your Credit Score?
- When you add up all of the factors, you might be surprised at the result.
- You may be ready now and not need to wait two years.
- You may be able to buy a house far more expensive than you realized.
You may be able to say "sayonara" 🤗 to your landlord.
At the very least, you will have a realistic picture📸 of where you are in the 🏡home buying process.
What About Housing Affordability?
Housing Affordability The Housing Affordability Index measures whether or not a typical American earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data. Although this figure is essential to creating a comprehensive overview of the real estate market, it’s not a factor you should consider in your personal home search.
What may be considered affordable to you based on your income and other factors
may be different than what’s affordable to the average buyer.
Buying Power Matters
A home’s list price is not what determines whether or not you can purchase it.
While it is important to look at the price
the most IMPORTANT factor
is what it will cost you each month to own the home.
- The purchase price
- Housing-related expenses,
- Annual property taxes,
- Homeowner's insurance,
- HOA Fees,
- Maintenance and Repairs.
Figuring out this payment will prevent you from overestimating or underestimating your buying power. Once you have clarity on your buying power, you’ll have clarity when shopping. You will be educated and ready to make a good decision for your future.
Make sure you keep some reserves. Don't put all of your money toward the down payment, leaving nothing left over for life outside of your monthly house payment.
Think about the lifestyle you want to live.
Vacations, cars, clothes, entertaining, tuition, eating out, oh yea and those "MachioLATAaLola la la la's" .
Understanding your buying power will insure that you get YOUR name on the Deed of Trust without sacrificing the lifestyle you desire.
If you haven’t sold your current home yet, a Comparative Market Assessment (CMA) will give you a general idea of how much you may get for your home based on what other homes have sold for in your area. Contact our team for a FREE CMA!
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Calculating Your Buying Power
Buying Power ( I love those words) is calculated by adding the money you’ve saved for a down payment (and/or the money you net from selling your home) to all of your sources of income and investments that could be used to make your monthly payment.
Make sure to include your monthly pay, commissions or tips, dividends from investments, payments from rental properties or other monthly income you receive, as well as the loan amount you’re willing to finance and qualify for.
With emphasis on the word willing to finance. You must really be in touch with the amount you are comfortable spending each month regardless of the amount you qualify for.
Most lenders advise buyers to spend no more than 35 to 45 percent of their pretax income on housing. This is gross income and sources of revenue. When calculating expenses don't forget to factor in property tax and home insurance to the cost of housing plus about 18% per year for maintainance.
Some financial experts advise spending no more than a very conservative 25 percent of your after-tax income on your housing expenses. Whether you plan to spend the average, play it conservative or split the difference is up to you.
These figures bring up an important point: you don’t have to spend all of your savings and available monthly income on a mortgage payment. It’s important to set money aside for regular home maintenance, unexpected repairs and monthly fees, such as a condominium or homeowners association fee.
While the ratios above are commonly accepted, a lender will look at your total financial picture when they decide how much they’re willing to lend.
It may be tempting to take out a large loan in order to purchase the home of your dreams, but keep in mind the less money you have to borrow, the stronger your buying power may be.
4 Things That Impact Buying Power
1. Credit score. A great score can help you lock into a lower interest rate.
2. Debt-to-income ratio. The lower the ratio, the better risk you may be to lenders as long as you have an established credit history.
3. Assets. This includes the documentation of where the money for the purchase is coming from and the mix of your investments.
4. Down payment. The more you’re able to put down, the less you will have to borrow. With a down payment of 20 percent or more, you won’t have to purchase private mortgage insurance (PMI) and you may also be able to negotiate a lower interest rate.
Saving for a Down Payment
Set a Savings Goal
Figure out how much to save by using the sales price for homes that fit into your monthly budget. Then target your down payment amount.
For example, if homes are selling for $400,000 in your area and you want to put 20 percent down, you’ll have to save $80,000. Set a goal to save that amount within a specific time frame.
Cut Back on Expenses
Review your monthly expenses and look for ways to save. Twenty-nine percent of buyers cut spending on non-essentials items and 22 percent cut spending on entertainment while they were saving for a home.
Think about items you can live without or cut back on temporarily while you’re saving.
Look for Ways to Boost Your Income
Get a side job or sell items online or at a garage sale to increase your income in a short amount of time.
Be sure to save any windfalls you get, including your annual income tax refund or work bonuses.
Check Out Home-Buying Programs
Your state, county or local government may offer special programs, such as grants, for first-time buyers to use. Cities have programs for low and moderate income buyers. Ask us we know!
Thirteen percent of all buyers, and 24 percent of first-time buyers, were given money from family or friends to use toward the down payment of their home.
Equity From Your Current Home
More than 52% of buyers used the proceeds from the sale of their primary residence toward the down payment on their next home. 76% tapped into their savings accounts and kept current home as a rental.
Tap into Your 401(k)
If you have a 401(k) plan, you may be allowed to borrow a portion of it, the lesser of up to $50,000 or half of its value, for your down payment.
Remember, it’s a loan, so you’ll have to pay it back. If you leave or lose your job before you’ve repaid the loan, you’ll have between 60 to 90 days to repay the balance or face stiff taxes and penalties.
Work Out Your Buying Potential
What’s your buying potential? Use this worksheet to get an estimate.
Use the table below to see the size of the loan you may be able to obtain with the monthly mortgage payment.
Didn’t see your desired loan amount?
Use the table below to estimate your monthly payment (principal and interest) per $1,000 of your loan. To figure out an estimated loan payment, multiply the factor by the number of thousands in the amount of your mortgage.
For example, if you intend to borrow $200,000, with a loan term of 30 years at 4% interest, multiply 4.77 x 200 = $954 per month.
Don’t forget to factor in property taxes and insurance.
These are often added to the principal and interest of your mortgage payment—the money used to pay down the balance of your loan and the charge for borrowing the money.
These numbers vary. Contact your insurer for a home insurance quote and your county's property appraiser’s office for the current market value, assessed value, and property tax rate.
Once you have these figures, divide each by 12 to estimate how much they’ll add to the above payment amounts.
What can you buy with your buying power?
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