How Much House Can You Afford?

Just because the bank will lend you the money doesn't always mean you should take it.

Look at the potential resale value of the house you are considering. Some houses are worth the expense and others are just overpriced. Here are some great attributes:

• Good location. The smallest house in the best neighborhood is more valuable than the largest house in a less desirable neighborhood.
• Easy to maintain and not a heat hog or a repair nightmare.
• Low taxes in comparison to neighboring areas.
• A desirable floor plan.

Homes with these attributes are available in every price range. It's worth looking at homes within a range of $50,000.00 on either side of your target price. You never know how negotiable the owners may be.

How much down payment can you afford?
Homeowners underestimate the down payment they can make. Aside from the money you have saved, you might be able to borrow from family members or your pension and deferred compensation plans. Have a garage sale in advance or take items to consignment shops to add to your down payment savings. With the lower interest rates, you might qualify to buy a home valued at a higher price than you could have a few years ago.

Remember, however, that if your down payment is less than 20% the lender usually requires you to carry PMI (private mortgage insurance) an added cost to your mortgage. Keep in mind that you will also have the one-time closing fees that may decrease the amount you are able to use as your down payment.

How much of a mortgage can you afford?

Your lender generally insists that:

1) your monthly housing costs, including mortgage principal and interest, property taxes, homeowner's insurance and private mortgage insurance, should equal no more than 28 percent of your gross monthly income.

2) that sum plus your minimum monthly payment on any long term debts should equal no more than 36 percent of your gross income. Know these figures before you start, as it allows you to zero in on your search. Always a good rule of thumb: Spend no more than two and a half times your gross income on a home.