Before going to look for that perfect home, before writing contracts, before considering all the fun upgrades in the home, one important question needs to be asked, “How much can I afford in a new purchase.” Whether you have a stash of cash in the bank, or a very tight budget, most loan officers are going to need a little information before they can give you a good answer. Here are a few important items to think over and have in mind when you speak to your favorite loan officer:
- Down Payment – How much do money do you have saved for a down payment? Of the money you have saved, how much do you want to budget toward a home purchase. There are FHA loan programs where the down payment is as low as 3.5% of purchase price. While these are great loan programs for making a home purchase, these programs also require mortgage insurance and result in a higher mortgage payment. Other programs that require 20% of purchase price for down payment are available. These loan programs do not require mortgage insurance. Generally, the higher your down payment, the better the loan program is for the purchaser, because the bank is taking less risk on mortgages with higher down payments.
- Closing Costs of the Mortgage – Every mortgage has closing costs that range between 2-4% of the mortgage loan amount. That could be $4,000 in closing costs on a $200,000 mortgage. The amount of closing costs varies from lender to lender and different loan programs. Closing costs may also be paid by the seller, allowing a buyer to keep that cash in the bank. If closing costs are paid by the seller, the loan amount tends to be 2-4% higher and the mortgage payment will reflect that higher loan amount.
- Interest Rates – Currently mortgage rates are under 4.5% on a 30-year fixed mortgage. While this rate is higher than the lowest interest rates of the past few years, this rate is still a great rate for a mortgage. As the interest rate rises, the amount a homeowner is able to borrow goes down.
- Property Taxes – Property taxes are generally paid through the mortgage payment and divided into 12 payments. Typically, property taxes are $1,200-$1,800 annually. The result is that property taxes will add $100-$150 to a mortgage payment.
- Home Owner’s Insurance – Costs of insurance runs around $40-$60 per month. Costs vary depending on the company you choose, the amount of the policy, and any additional coverage you want to add to that policy.
- Mortgage Payment – With all this information, a great loan officer is going to be able to calculate what you are able to afford for a purchase price on a home. The loan officer is also able to calculate what your monthly mortgage payment will be. If you feel the mortgage payment is too high, then it is possible to reduce the purchase price down to a payment that is more affordable.
So… are you:
- Tired of just reading and talking about a new home purchase?
- Itching to get started finding that special home?
- Ready to find out how to get a great deal?
…then the Thompson Group is ready to help! Reach us at 480-776-5214 or www.ThompsonGroupAZ.com to get going and find your new home.