One of the best investments one can make is in their own home. However, for the home to be enjoyable it must be affordable. There is not a single all encompassing test which will determine whether a home is affordable, however, below are some general guidelines to determine affordability prior to purchasing real estate.
Guideline #1: Monthly Housing Costs should not exceed 28% of Gross Monthly Household Income. Housing costs are not just mortgage payments, but include monthly mortgage, taxes, insurance, association fees and maintenance.
Guideline #2: Overall debt should not exceed 36% of Gross Monthly Income. The more debt one owes, the less they should spend on a home to keep ones debt to income ratio at 36% or less.
Guideline #3: Save for a Down Payment A down payment builds equity in one’s house, however too large of a down payment may leave a new homeowner on a tight financial budget. Conventional loans are now available with down payments as low as 5%, however, the lower the down payment, the higher the monthly mortgage payments will be on the new real estate purchase.
Guideline #4: Unforeseen expenses. Owning a home is extremely rewarding and expensive. Every year something will need to be fixed, maintained or replaced. It is important to set money aside, as little at 3% of the cost of the home per month in anticipation of home expenditures. The small monthly savings will help the new homeowner refrain from incurring any new debt in effort to maintain their home.
To speak with one of our lawyers regarding your financial situation, please contact one of our conveniently located law offices listed below.
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