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It is a fantastic time to buy a home in the Westchester, Putnam and Dutchess County areas of New York. But how do you determine if you can afford that home? Here is a general overview.
Your Mortgage Payment. Many financial experts agree that your monthly mortgage payment shouldnt exceed 28 percent of your gross monthly income. To determine how much this translates into, take your total gross annual salary, multiple it by 0.28 and divide that by 12. The result is the maximum amount you should comfortably be able to spend for a monthly mortgage payment on your Westchester, Putnam or Dutchess County home. For example, if your gross household income last year was $75,000, the maximum monthly payment you should expect to pay comfortably would be $1750 ($75,000 x 0.28 / 12).
Some financial experts believe that paying roughly one third of your monthly income towards a mortgage payment is normal. I, however, must stress that banks look only at gross income. Buyers need to feel comfortable living off their net income. So, the payment a homeowner is comfortable with should be dependent on their lifestyle, which includes what they spend on traveling, going/eating out, etc.
Your mortgage payment will include principal, interest, taxes, insurance and flood insurance, if required. Your total housing payment also includes common charges and assessments, if applicable. Your total cost of housing will include all of the above plus the estimated energy costs (heat and electric) as well as maintenance costs.
Your Downpayment. It is recommended by most financial experts that you provide at least 20 percent of the purchase price of your home as a downpayment. However, you can buy a home for less than that. With 20 percent down, mortgage companies consider you a much better financial risk and you wont be subject to the additional Private Mortgage Insurance (PMI) required when you borrow more than 80 percent of the purchase price of a home. The more you put down, the less you have to borrow and the less you will spend on your monthly mortgage payment.
First time buyers are offered special financing with as little as 3 percent down, with special assistance for closing costs and down payment. Job loss protection is also included. First and second time buyers can purchase with as little as 3 and a half percent down. All down payment and closing costs can be gifted.
Veterans are offered the opportunity to purchase with 100 percent financing, no PMI and only 1 debt ratio of 41 percent. All VA loans are assumable.
Special programs for purchasing Fannie Mae foreclosures only requires 3 percent down and 3 percent closing cost assistance, with no PMI cost.
Deb-to-Income Ratio. This is the amount of debt you currently have in direct relation to how much income you bring into your household. The lower your debt-to-ratio income, the more attractive you are to a mortgage company and the easier it will be to keep up with the mortgage payments on your new home. According to the Federal Reserve, if your debt equals more than 40 percent of your gross annual income, you might face financial distress. Work on getting your debt-to-income ratio down to a manageable level.
Employment. Is your company currently experiencing or expected to have layoffs soon? Are you considering switching to a new job? You might want to think about staying right where you are for now. Mortgage companies want to see a steady, consistent work history when considering whether to approve you for a loan.
Credit. Lenders currently are looking at and evaluating borrowers with regard to their ability, capacity and willingness to repay their financial obligations. The mortgage is usually the largest financial debt a buyer incurs. The three scores evaluated for a home loan are: Fair Issac, Beacon and Classic. Lenders look for a minimum credit score of 640. Credit scores range from 350 to 850. Today, a good credit score is 700. Most lenders now offer credit optimization and credit re-scoring to update credit data and scores within days.
Lifestyle. Do you like to travel or are you a homebody? Do you prefer shopping or working on a garden? This will help you decide whether you are willing to spend a little more on the Westchester, Putnam or Dutchess County home of your dreams because youll be spending more time there or if a smaller home is more suited to your lifestyle.
Keep in mind that when you buy a home you will want to make it your own. Budget your money to allow for painting, new furniture and updating. Proper financial planning and cash-flow budgeting are more important than ever. Higher commuting fuel costs and home energy costs need to be evaluated as well.
Buying a home is a major responsibility that should be given some serious consideration. Consider all the options above to determine if you can afford to buy that home or not. It is highly recommended that buyers consult their attorneys, mortgage advisers, financial planners, accountants or other appropriate people when buying a home.
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