how much house can you afford? 1 source: keys to home ownership: national foundation for credit...

How Much House Can You Afford?

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Source: Keys to Home Ownership: National Foundation for Credit Counseling

Be A Financial Trainer or Tamer

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How Much

House Can You Afford?

2 ½ times your yearly income

(or maybe 3)

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$ 40,000.00 annual income

x 2.5

$100,000.00 house

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YOURBUYING POWER

• Your income

• Your existing debt

• Your down payment

• The interest rate

• Your credit record

• Mortgage term (length)

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How Much is

A Lender Willing to Lend You?

Your monthly housing costs should total no more than 28% of your gross monthly income (approximately ¼)

Housing Costs28%

Other Costs72%

1.6Income

$ 40,000.00 annual income

12 months

$3,333.33 monthly income

X .28

$ 933.00 house payment

7Income

Increase Your Income and You

Increase The Amount of House You Can Afford

Income8

How Much is

A Lender Willing to Lend You?

Your total debt should total no more than 36% of your gross monthly income (approximately 1/3)

(A lender may finance at 42%)

Total Debt36%

Residual Income

64%

2.9Debt

$ 40,000.00 annual income

12 months

$3,333.33 monthly income

X .36

$1,200.00 TOTAL DEBT

-- 933.00 house payment

$ 267.00 in other debts

10Debt

Decrease Your Debt and You Increase The

Amount of House You Can Afford

Debt11

YourDown Payment

• 20% Traditional Conventional

• 5% Today’s Conventional

• 3-5% Federal Government Insured

• 2-3% State Government Program

• 0% Veterans Administration

• 0% Builder Finance

12Down Payment

On a non-insured mortgage, if you do not have a 20% down payment you will have to pay PMI (personal mortgage insurance)

Personal Mortgage Insurance

13Down Payment

Increase Your Down Payment

and You Increase The Amount of House You Can

Afford

Down Payment

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A Decrease In The Interest Rate and You Increase The Amount of House You Can Afford

Interest Rate

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Credit WorthinessIs Determined By Your FICO Score

• Payment History (35%)

• Indebtedness (30%)

• Length of Credit (15%)

• New Credit Initiated (10%)

• Types of Credit in Use (10%)

Interest Rate

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An Improvement In Your Credit

Record and You Increase The

Amount of House You Can Afford

Interest Rate

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A Decrease In The Term of Your

Mortgage and You Decrease The

Amount You Pay For Your House

Mortgage Term

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30 Year Mortgage

3 times the price of your house

15 Year Mortgage

2 times the price of your house

Mortgage +

Interest + Interest + Interest

Mortgage Term

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Monthly Mortgage Payment

P&I =?

PITI = ?

PITI + PMI = ?

T&I = ?

Purchase Price = $ 200,000.00Down Payment (5%) = $ 10,000.00Loan Amount = $ 190,000.00Est. Closing Costs = $ 5,700.00(Total cash required at closing 15,700.00)Principle & Interest (7%) = $ 1,256.75Est. Taxes and Insurance = $ 290.00Est. PMI = $ 80.00Total Monthly Payment = $ 1,626.75Monthly Income Required $ 5,000.00Yearly Income Required $ 60,000.00Debt Allowed Per Month $ 400.00

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• Upfront costs•down payment• closing costs

• points• settling in costs

Terminology

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• Ongoing costs• Monthly Mortgage Payment

• P & I• equity

• T& I• escrow

• PMI• Maintenance & repairs

Terminology

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Terminology

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• Mortgages• Conventional• ARM

• Prepayment Penalty• Rehabilitation Loans - Community Home

Improvement Mortgage Loans• Seller take-back• Lease-purchase • Fannie Mae and Freddie Mac Community

Lending

Terminology

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• Government Insured Mortgages• Federal

• HUD• FHA

• VA• USDA

• RHS• State and local loan programs

How Much House Can You Afford?

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