Steps to owning your first home… can you afford to buy?

Finding homes online and wondering if you can afford to buy? Here are some basic guidelines that can help you decide…

House-incomeWhat 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 – EmailMinneapolis Buyer's Agent


Written By

I love what I do! Highly insightful, analytical and creative, there is nothing I love more than helping you find the right solution for your real estate transition. My mission is to serve my clients with honesty and integrity, exceeding their expectations in service and support… and to help others by donating a portion of every transaction to Habitat for Humanity.

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The HomesMSP Team is committed to meeting you where you are and listening… really listening to understand you so we can use our extensive knowledge of the market and local neighborhoods to give you personalized service.