 | Mark Kolarik is the President of the Kansas Teachers Community Credit Union, located in Pittsburg, KS, since 10-2002 and is a board member of the Kansas Corporate Credit Union located in Wichita, KS . He has been employed in the financial service industry for the last 31 years, having worked in several credit unions for 21years and 10 years in the banking industry. He holds a Bachelor of Business Administration degree from the University of Wisconsin-LaCrosse and is a Certificated Credit Union Executive. |
Financial
2013-05-29 11:46:04
What are the affordability guidelines for home buying?
Q-I would like to purchase a home. Can you tell me how much house I can afford?
A-Congratulations, you’ve decided to buy a house. Becoming a homeowner is fun and rewarding, but it also can be stressful. The more prepared and educated you are about the home buying process, the less stress you’ll encounter.
After you have determined your personal readiness to buy a house, such as narrowing down a location and if you will enjoy maintaining a house, the next thing you need to do is crunch some numbers to find out how much house you can afford. To estimate an affordable monthly payment, the majority of lenders use the classic 28/36 guideline. First , your monthly house payment (including mortgage principal and interest, property taxes, and home insurance) should amount to no more than 28% of your monthly gross income (what you earn before income taxes, Social Security, and other deductions come out of your paycheck).
Second, total monthly debt obligations (mortgage, car payments, credit cards, and college loans) should not exceed 36% of your monthly gross income. In calculating your cost to own a house, keep in mind that most mortgage lenders typically require a down payment equal to at least 5% of a home’s purchase price and monthly payment are only part of the cost to buying. If you buy a home with less than a 20% down payment, your lender will require you to purchase private mortgage insurance (PMI), which will increase your monthly payments. You’ll need additional money to cover closing costs: lender fees, property appraisal, escrow payments, and more.
Over the life of your loan, your mortgage amortizes. That’s the process by which you gradually pay down the loan. In the early years of your mortgage, most of your payment goes toward interest. As years go by, your payment gradually shifts between principal and interest until, by the last year, almost all your payment is toward principal. There is an assortment of types of mortgages to choose from such as fixed rate or adjustable rate, plus terms to choose from such as 15, 20, or 30 years. Just remember the longer the term the more interest you will pay.
For more specific information, talk with a mortgage loan officer at your local financial institution.
