Buying a Home – Monthly Payment Affordability
Article by Praveen O. Chaparala
Buying a Home is one of the biggest decisions you will make in your life. Homeownership is better when you compare buying to renting a home. When you buy a home, you need to calculate the monthly payment you can afford. The monthly payment that you can afford depends on the income you make, your credit score, the current monthly expenses you have, the amount you put as downpayment and the interest rate you will get.
You can calculate an estimate of your monthly payment by using Ginnie Mae’s Home Ownership Affordability Calculator. The affordability calculator will help you get an estimate of how much you can afford to buy a home based on your income, savings, debt and expenses. These can be calculated by using the Ginnie Mae Personal Finances Worksheet.
Your income can be calculated by adding the borrower’s salary, co-borrower’s salary, taxable interest, investment dividends and other income. If you earn tips, bonuses or commission, enter them in the other income category in the worksheet. You need to consider if your future income will increase, decrease or will remain at the same level.
Your monthly expenses can be calculated by adding the utilities bill, car payment, insurance, medical expenses, clothing expenses, taxes, entertainment/purchases and child support. You need to consider if your future expenses will increase, decrease or will remain at the same level.
Your savings can help you pay for your downpayment and closing costs on the home. You can calculate your savings by adding the money in your savings account, checking account, retirement fund contributions, stocks, mutual fund investments and other savings. Consult with a financial advisor before you consider using your savings for the downpayment of your home.
Your debt to income ratio is important to the lender. You need to have a low debt to income ratio. You can calculate your debt by adding your credit card debt, car loans, school loans, alimony, child support and other personal debt.
Income + Savings – (Expenses + Debt) = Net worth. By calculating your net worth, you will know if you can afford the principal, interest, tax and insurance(PITI) and private mortgage insurance payments on the home you want to buy. Your monthly expenses + PITI will be your monthly expenses when you buy a home. Generally, 28% of your income should be the payment on your home. You can get loans from banks, such as Bank of America, Wells Fargo, Chase and Bank of Texas. The Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) also offer loan programs to qualified buyers.
Your credit score is another important factor in buying your home. Lenders want to see a high credit score before they give you a loan. The interest rate you will get depends on your credit score and credit rating. It is important that you consult with a credit counselor to understand your credit rating.
Buying a home is better when you compare buying to renting a home. You can calculate how much it costs to rent a home compared to buying and building equity in your home by using the Rent vs Buy Calculator. Your monthly payment can be calculated using the Ginnie Mae online calculators and the worksheet that they provide.
About the Author
Praveen O. Chaparala works for DFW Realties , a DFW Real Estate company serving home buyers in the Dallas – Fort Worth metroplex. Dallas Homes for Sale
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