How Much House Can I Afford
Joe and Anne Anderson have been saving hard for a deposit, and they want to know how much house they can afford. Using the simple mortgage calculator on this page they sit down to work it out.
Anne has a pre-tax annual salary of $40,000. Joes is $32,000. Anne types these numbers into the Your salary p.a. andPartners salary p.a. fields. Together, and with a little help from Joes parents, they have managed to save $36,000 toward a deposit. Anne types $36,000 into the Your deposit field.
The Andersons paid off their credit card debt before they started saving their deposit, but they do have a car loan that requires payments of $500 per month. They dont have any other personal loans. Anne enters $500 in theOther monthly costs field. General budget expenditures do not count as other monthly costs, only credit payments.
With all the data entered, Anne hits the Calculate button and they go over the results together.
The mortgage calculator suggests they can afford a mortgage between $198,000 to $277,200. This range is an indication of what banks are likely to offer them as a mortgage. Since banks have different lending requirements, and different underlying rules of how much they will lend it is impossible to give an exact figure.
The general formula is three to four times the combined incomes, after deducting any net costs from other loans. In the case of the Andersons, this net figure is $66,000.
Can I Really Get A Home Loan Online
Although most steps in the home buying experience are still face-to-face, there are many steps in the process that you can do from your home or office. Getting a home loan certainly is one of them. Before you fill out an online application, however, youd be wise to first review various online resources.
Start by looking at online information resources that can help you work through the maze of financing a new home. Many public and non-profit organizations are waiting to hear from you.
- The U.S. Department of Housing and Urban Affairs provides information about finding, financing, and keeping a home. Go to www.hud.gov.
- InCharge Debt Solutions counsels potential homebuyers, educates and prepares them for the purchasing process. Visit www.incharge.org and choose Housing Counseling from the list of services, or call toll-free 877-267-0595.
Once you familiarize yourself with the process and terminology, youll be better prepared to look at the private lenders websites. Online lenders will tell you if they participate in government-backed lending programs. You can usually get interest rate quotes and loan pre-qualifications very quickly.
Our Preferred Strategy For A Fixed Mortgage Rate
Really take the time to assess your own personal situation, and determine how likely you are to sell, or switch to a new property within the term of your mortgage. If this is a real possibility, then seriously consider a variable rate mortgage.
If your budget permits, also go for bi-weekly accelerated payments. You will pay slightly more every month, but no interest on the increase and it will end-up paying your mortgage almost 3 years faster, and save big in interest!
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What Type Of Mortgage Loan Is Best
Before venturing into homebuying, you might think a mortgage is just a mortgageyou go to the bank, they decide whether to offer you a loan, and once you’re approved, you begin making payments. But you’ll soon find out there are many types of mortgage loans offered by lenders, each with its own borrowing criteria, restrictions, benefits and drawbacks.
To determine which type of mortgage loan is best for you, you’ll need to consider your credit score, how much you can put toward a down payment, how large of a loan you need, and how quickly you want to pay it off, among other factors.
Use Our Mortgage Affordability Calculator
Use our Mortgage Affordability Calculator to estimate how much you can borrow.
They must also assess the monthly payment you can afford, after looking at your outgoings as well as your income.
This is called an affordability assessment.
The lender must also look ahead and stress test your ability to repay the mortgage.
This is to make sure youll still afford repayments if the interest rate rises or there is a change to your lifestyle, such as:
- having a baby, or
- taking a career break.
If the lender thinks you wont be able to afford your mortgage payments in these circumstances, they might limit how much you can borrow.
Work out your possible monthly repayments with our Mortgage calculator
Comparison websites are a good starting point for anyone trying to find a mortgage tailored to their needs.
Some of the biggest mortgage comparison websites are:
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Community Banks And Credit Unions
The community bank is the safe choice. You probably have an account there, or had one in the past. There should be more of a personal touch because the community banker makes his money in your neighborhood and needs you as a customer. He can make some concessions on things like credit score and maybe even size of the down payment. Unfortunately, local banks often operate a little short-handed so it may take time to get an appointment or solve a crisis, if you have one.
How To Get A Home Equity Loan On A Paid
When you take out a home equity loan on a paid-off house, youll have to check off the same boxes you would for a traditional mortgage. Lenders will make sure your homes value can support the amount you want to borrow. Additionally, lenders will review your financial information to make sure you can afford the loan.
Here are the steps to using a paid-off house as collateral for a home equity loan.
1. Know where you stand. A paid-for house means you have 100% equity in your home. However, having enough equity is just one requirement youll need to meet when you take out a home equity loan on a paid-off house. Lenders typically consider the following factors:
2. Apply for a home equity loan. When you borrow against your house, you’ll get a competitive interest rate by applying with multiple home equity loan lenders. Consider getting quotes from various types of lenders. For example, you might want to start with a bank or credit union you already have a relationship with. Additionally, consider other local, regional or national banks and online lenders.
3. Compare home equity loans. Each lender you apply to will provide a loan estimate. Review and compare the loans to determine which lender has the best terms. In addition to the interest rate and monthly payment, compare the annual percentage rate , length of the loan, total interest paid and loan fees.
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Is A Discounted Mortgage A Good Option
A discounted mortgage is offered by lenders that want to attract you to their more expensive SVR by dropping their rates temporarily. The discount will be offered for an introductory period usually between two and five years after which youll be back on their more pricey mortgage.
If youre struggling with the initially high costs of home ownership in the first few years of buying, a discounted mortgage can help significantly but you need to consider whether this is the right option or if fixing your rates would be better. Its also possible to find a discounted tracker mortgage, which can be very competitive.
If you choose a discounted mortgage, you need to be careful about what happens when the introductory period ends. Its important to understand if and when you can remortgage, and anticipate how much your monthly repayments could increase by so that you are clear on what you can afford in the future.
What About Mortgage Fees
When taking out a mortgage you will have to pay fees ranging from quite small to very substantial, depending on the deal being offered. Types of fees may include:
- Arrangement fee this is the biggest variable. Some mortgages have no arrangement fee, while others run to a few thousand pounds. Some buyers add this fee to the mortgage if they cant spare the cash up front but if you do this, youll pay more over time due to interest.
- Booking fee when you agree a deal, you often have to pay a fee upfront to secure it. Expect this to be between £100 and £200.
- Valuation fees this is a standard check your lender will carry out on the property to make sure its worth the price you are paying for it. The cost of this is about £300. Note that although this valuation is a type of survey, it is no substitute for hiring your own surveyor.
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How Do I Get A Good Mortgage Deal
Getting the right mortgage deal for you depends on both your attitude to risk and your circumstances, including your . If you are in a strong financial position with a large deposit, or are prepared to pay a higher arrangement fee, then you should be offered a better range of deals to choose from. However, if you have only a small deposit, and cannot pay a big arrangement fee, then your choice will be more limited.
What Credit Score Do I Need To Get A Mortgage
You credit score is the starting point for lenders and if its not high enough, it also could serve as the ending point. Most lenders want a credit score of 680 or higher to start talking about a mortgage. Its possible to get one with a score under that, but it would be a stretch to think youll get a conventional loan from a bank or online lender.
A credit score between 680 and 750 will lower the interest rate and anything above 750 will get you the lowest interest rate possible. If youve stumbled with your credit history and your score is sub-680, you arent eliminated from finding a home loan, but it may cost you more.
Veterans Administration loans, which are reserved for military families, want your credit score to be above 620. The U.S. Department of Agricultures home loans for low-and-moderate income housing in rural areas, also seeks credit scores of 620 or higher. The Federal Housing Administration offers loans to consumers with scores as low as 580.
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When Is A Jumbo Mortgage The Right Option
Conventional loans are also sometimes referred to as conforming loans, which means they “conform” to government limits that are intended to keep the housing market stable. Loans that exceed this amount are called noncoforming loans, or jumbo loans, but what qualifies as a jumbo loan can vary widely depending on location. That’s because in hot markets in places like San Francisco, the average house costs a lot more than it does in areas like the Midwest. In most regions, however, a jumbo loan is anything over $484,350.
What To Consider When Getting A Government
If you’re unable to qualify for a conventional loan, or your priority is getting a loan with as low a down payment as possible, government-insured loans can be a great option. They’re ideal for eligible borrowers with low cash savings.
Government-insured loans are also a good option for homebuyers with bad credit. An FHA loan permits credit scores of 580 and above with a down payment of 3.5%, and it sometimes will allow credit scores as low as 500 with a down payment of 10% or more. While VA loans don’t have an official credit score minimum, most lenders require a score of around 620. USDA loans typically require a score of 640 or above, and you can’t earn more than a certain amount .
Keep in mind that not all lenders offer government-backed loans. You’ll need to research local and online lenders to findes that do offer these loans and compare rates before deciding on one.
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What Do You Need For Mortgage Approval
Getting an official mortgage approval is a cinch if you’re already pre-approved.
A final mortgage approval requires a signed purchase contract for a home a pre-approval doesn’t. Your verifications may also require an extra level of detail.
The specific items you’ll need for your approval will vary based on your mortgage type and how you’re employed.
For example, conventional mortgages may ask for two recent pay stubs to show evidence of income. Portfolio mortgages may ask for copies of your federal tax returns.
If you’re salaried, your lender may call your employer to verify your employment. If you’re self-employed, you may be asked to provide an updated profit-and-loss statement with evidence you’re still in business.
If you meet the following criteria, your mortgage approval will be fast and inexpensive.
- You’re a first-time home buyer
- You’re buying a home from a person
- You’re salaried at your job and don’t own the company
- You’re making a down payment of at least three percent
- You have a decent history of paying your bills and rent on time
Your mortgage approval may require evidence of assets, landlord contact information, recent W-2s, tax returns, and more if this isn’t you.
Your mortgage lender will make a mortgage approval checklist for you. Most mortgage loans are approved in a few days.
Our Preferred Strategy For A Variable Mortgage Rate
Why? You will pay more of your principal balance from the beginning . This will help you save a lot over time! The more you own today, the less interest you pay to the bank over the next 25 years.
If your budget permits, go for bi-weekly accelerated payments. You will pay slightly more every month, but no interest on the increase and it will end-up paying your mortgage almost 3 years faster, and save big in interest!
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Factors That Impact Affordability
When it comes to calculating affordability, your income, debts and down payment are primary factors. How much house you can afford is also dependent on the interest rate you get, because alower interest ratecould significantly lower your monthly mortgage payment. While your personal savings goals or spending habits can impact your affordability,getting pre-qualified for a home loancan help you determine a sensible housing budget.
Im Buying Business Premises
If you want to buy business premises, such as a shop, youll need a commercial mortgage. Again, this kind of mortgage carries higher risk for a lender, so this can affect both the deal you are offered and the amount you are able to borrow. Generally you cant borrow as much as you can with a residential mortgage.
Commercial mortgages are available as both interest-only and repayment. Talk to your mortgage adviser and/or your accountant about which kind will be best for your business.
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Show The Seller Youre Making A Serious Offer
Youve probably heard of earnest money, but maybe you arent quite sure what it is. Think of it as your security deposit.
Earnest money tells the seller youre serious about buying their home. If you follow through with the contract, the money will be applied to your purchase. If you break the terms of the contract, you risk forfeiting the money to the seller.
There is no minimum requirement for earnest money. Youll negotiate an amount with the seller. Then, within a few days of the seller accepting your offer, youll deposit the earnest money into an escrow account.
Best For Small Loan Amounts With No Credit Check
The average pawn shop loan was around $150 in 2017, according to the National Pawnbrokers Association. If you dont think youll qualify for a traditional personal loan, you may want to consider a pawn shop loan. You wont need a credit check to get one and they may be less risky than a payday loan or title loan.
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Avoid Cashing Out Your Equity
As you begin to build equity in your home, it can be tempting to try to cash in on that equity through a home equity loan or by refinancing and taking money out of your home. This is a bad idea because it means you will be paying money on your mortgage for years to come. Commit to buying your home and paying it off quickly now. If you can pay off your mortgage quickly, you will be able to handle emergency situations like a job loss more easily. If you cash out your equity to pay off other debt, you are putting your home at risk, and you may lose your home if you struggle to make payments in the future. Protect your home by working to pay off your mortgage and do not cash out your equity in your home.
Mortgage : Basics Every Home Buyer Should Know
For renters, it’s simpler than ever to buy your first home.
The government has expanded its low- and no-down payment mortgage coverage over the last year. Currently, there are two bills in Congress to give grants and federal tax credits to first-time home buyers.
Buying your first home doesn’t have to be scary. Six million people buy properties each year, and there’s a clear path forward for renters who want to own.
This mortgage 101 guide will explain the concepts, strategies, and action plans you’ll need to stop renting and start owning.
Here’s what we’ll cover:
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