Finding homes online and wondering if you can afford to buy? Here are some basic guidelines that can help you decide…
What you can afford = 3x your annual income
- Rule of thumb for about how much you should spend on a home purchase, although this can vary greatly depending on your down payment, other debt, credit score, interest rate, etc
- Combined income of everyone who will be on the mortgage
- Median home sale price in the Twin Cities was $163,000 in April 2012
- This means you should have annual income of $54,333 to buy a median priced home
Know your limits
- Conventional financing usually requires that your total monthly bills be no more than 45-50% of your monthy income
- Most FHA loans allow up to 55% depending on overall credit, etc
- However, only you know what is a comfortable limit for you
- Before automated underwriting total debt-to-income limits were usually 38% for conventional loans and 41% for FHA loans
Money you will need up front
- Earnest money – usually about 1-2% of purchase price, submitted with your offer and held for you to use towards your down payment at closing
- Inspection – usually done right after coming to an agreement, budget about $400
- Appraisal – done as part of mortgage underwriting, budget about $400
- Insurance – first year homeowner's insurance must be in place by closing
- Down payment – usually 3.5% – 20% of purchase price, payable in certified funds at closing
- Closing costs and prepaids – estimate 3.5%-5.5% of purchase price, most costs related to financing and payable at closing; ask your lender for an estimate; seller can contribute if part of purchase agreement
These are only rough guidelines… the only way to really understand your situation is to talk with a mortgage lender!
Sharlene Hensrud, RE/MAX Results – Email – Minneapolis Buyer's Agent
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