Home Buying
Can I Buy A Home?
With interest rates low, many renters
would find that the monthly payment on a home would be similar to what they are
now paying for rent - or even less. But many people still don't buy a home because
they find the whole process intimidating. In this brochure, we answer three of the
most common questions people ask when they are thinking about buying their first
home:
1. What price home can I afford to buy?
2. How much will it cost?
3. Can I qualify for a loan?
Our goal is to help you feel more confident, and
getting ready to buy a home if that's right for you.
How Much Can I Afford?
The general rule of thumb is that you can afford a home that's about two to three
times your annual income. So if you make $50,000 a year, you may be able to buy
a home for $100,000 -- $150,000. But that's just a rough rule of thumb. The last thing you want to do when you buy is to stretch yourself so thin that you can't
afford to do anything outside your home!
Lenders will look at your housing and debt ratios
in determining how much they think you can afford.
How Much Do You Really Earn?
Before you can figure your housing and debt ratios,
you must be clear about how much you earn, in terms of your gross monthly income.
Gross monthly income is your income before taxes. If you are paid an annual salary
then take that salary before taxes, health insurance premiums or retirement plans
are taken out. Divide it by 12, and that will give you your monthly income.
If you are paid hourly or weekly, take your hourly
pay and multiply it by the number of base (or regular) hours you work each week.
Then multiply that by 52 (the number of weeks in a year) to give you an annual number.
Divide that by twelve (the number of months in a year) to get your monthly income.
Let's say you earn $20/hour and you normally work
25 hours a week. You'll take 20 and multiply it by 25 = 500 to get a weekly figure.
You'll then multiply 500 x 52 = 26,000 to get an annual figure. Then divide 26,000
by twelve to get a monthly income of $2166.
In calculating your income, a lender must allow
you to include:
· Child support or alimony, usually if it will continue
for at least another 3 -5 years
· Retirement income, including Social Security benefits
or a pension as long as it will continue.
If you have income from a side business or if you
are self-employed, you'll need a lender that that has programs for the self-employed.
If you receive overtime or bonuses, the lender will generally need to document that
pay is regular and likely to continue.
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