A Guide on “How much house can I afford?”

The idea of buying a home is quite exciting, imagining that you get to own the building that you live in plus the surrounding compound, But you have to ask yourself the question "How much house can I afford?".

Owning a house is both an important commitment and a severe lifestyle choice. Buying a house is an important expense and a significant portion of the family budget. If your plan is to remain in your home for under ten decades, look at renting instead. Before you begin talking to lenders you should need to know "How much house can I afford?".  You can purchase a less costly house and take your surplus home equity and place it in your retirement portfolio.

Why you need a home affordability calculator?

The process of the purchase of a house, however, does not share the same enthusiasm. For some homeowners, the idea is to prequalify for as much mortgage as they can get. To buy a big house, without the consideration of other underlying factors that may affect the payment process. They fail to ask themselves the fundamental question, “how much house can I afford?” And as a result, fail to utilize the home affordability calculator created with the purpose of answering this question.

Unlike a mortgage pre-qualifications and preapprovals which are simpler and entail the estimation of how much money you can borrow based on your monthly or annual income, a home affordability calculator involves more detail. The home affordability calculator consists of calculations of how much house you can afford based on; salary, savings, monthly debt responsibilities as well as closing costs such as insurance and local taxes generally known as the income-debt profile. When home buyers ignore the question, how much house can I afford? They risk their financial stability with the inability to cater for their basic financial obligations and may consequently face the much-dreaded term foreclosure.

This article entails a detailed list of factors considered in answering the question, how much house can I afford?

And help you as a potential homeowner get a reasonable home budget and avoid the kind that would break your bank account.

General Income

The general income used in the home affordability calculation is an accumulation of your gross annual income for most calculators. That is the total amount of money that you earn every year in terms of; wages, salaries, commissions or even tips before taxation. Your general income is the primary determinant of how much you can afford to pay per month. It also helps you determine the price range in which you should consider getting a house. Especially given that the price range of homes that you may be willing to buy within a particular location is a recognized factor in your home affordability calculation. Thus the general income is the most fundamental factor that helps you with, how much house can I afford?

Monthly Expenses

For most people, their salaries are not meant to cater for mortgage payments solely. It is, therefore, worthwhile to consider monthly expenditure in this calculation. This aspect entails an approximate amount of what you would spend in a month on utility bills (such as subscriptions, insurance, credit cards, car loans) and other essential expenditure such as groceries. This inclusion will help you determine how much is left for you to use in making your monthly mortgage payments.

Therefore, if you need to be eligible for a bigger mortgage, pay off all your credit cards before applying.

How much down payment for a house?

Most mortgage loans require a down payment of at least 20% of the home’s price. It is also perceived that the more down payment, the bigger the house. But this idea does not cater for the monthly mortgage payments that you will be required to pay. With the home affordability calculator, however, both aspects (down payment and monthly mortgage payments) are considered. That calculator can, therefore, be used to estimate your home affordability and determine the monthly payments that you are legible to pay once you make the down payment. A better way to manipulate the down payment is by paying more to reduce the term and amount of your monthly mortgage payments.

which type of home loan is best?

The loan type is a critical consideration in the affordability calculation. There different types of loans which also determine different payments standards. The common two are the fixed-rate and the adjustable-rate loans. They both have their merits and demerits, and according to your financial capabilities, you should pick one that suits you. The fixed-rate is more consistent and predictable, adjustable-rates, on the other hand, start with lower interest rates. Using the affordability calculator helps you determine which will work best for you and help you answer, how much house can I afford?.

What house price range can I afford?

With consideration to your overall income, monthly expenses, your down payment, loan type and other financial factors the home affordability calculator helps you determine the homes within your price range in a location of your choice. With this estimation, you are easily able to figure out for yourself, how much house can I afford? Using the prices of homes within your price range.

The expense of a house is the single largest personal expense most individuals could face.

How much monthly mortgage payment can I afford?

The monthly mortgage payment is another very fundamental factor since it is what you will be paying every month for the rest of the loan term. When doing your calculation to answer, how much house can I afford? Other factors such as principals and interests, property taxes private mortgage insurance among other things are considered in making the estimation. The result lets you know how much home you can afford.

The 36% Rule

The 36% rule is one rule of thumb that most homeowners taking a mortgage loan are advised to follow. It stipulates that your total debt payments, that includes car loans, student loans and such should not add up to more than 36% of your total income before taxation. Although some lenders still offer loans to those whose debt ratio is past 36% (at a higher interest rate) it is advisable not to so as to avoid bad debt on your bank account. The 36% rule is significant in answering, how much house can I afford? Regarding debt-ratio.

Conclusion

There is a myriad of mortgage calculators on the internet for easy and quick access. They are, however, not as efficient as required in helping you with the question, how much house can I afford? Simply because their main and only aspect of consideration in making their calculation is your income ignoring all other financial obligations that affect it. Their assumption is that your salary is solely meant for your mortgage which is a risky assumption. You need to consider the major underlying factors that surround your finances including the most basic ones such as utility bills and food budget. The more the elements to include in the calculation the better for the home affordability calculator because that develops into the most accurate answer to the issue of, how much house can I afford?

Think about it.

The larger The down payment, the larger the house you can afford to purchase. The sooner your residence is repaid, the more freedom you have got in terms of having the ability to travel, explore other job opportunities further away, and to better take care of a lengthy family. Quite simply, don't just purchase the largest possible amount of house you are eligible for.

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What You Should Know About Refinance Mortgage and home loan.

Keep pushing, and you will get a means to refinance mortgage. Refinancing a mortgage is not cheap, and it is not always simply, but if you think about the probable savings, it might be worth your time and energy. Sub-prime mortgages are only brief term financing alternatives. The reverse mortgage is an intricate loan which is costly. In any situation, the reverse mortgage can occur rather quickly and will be able to help you to guarantee the finances that you want. With bad credit, you will undoubtedly pay increased mortgage to refinance rates.

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What refinance mortgage actually, means?

To refinance a mortgage actually, means that you have to pay off a loan that is already and then you will replace it with a new loan.

There are numerous reasons why some homeowners refinance their home.

• Having the desire to consolidate a debt.
• They would like to grab the opportunity of obtaining the lowest refinance rates they can get;
• To lessen the term of their mortgage policy;
• To convert an adjustable-rate mortgage to a fixed-rate mortgage, alternatively, vice-versa;
• or, to have the chance to touch a home's equity and eventually finance a large purchase.

Whatever the reason for refinancing mortgage may be, the homeowner should determine whether the idea is offering real benefits, since a lot of factors are involved in refinancing a mortgage.

Should I refinance my home loan?

So it is better that we take a closer consideration at each of your reasons and find out if it is worth the choosing and if it will meet the benefit.

Firstly, although some grounds for refinancing can be financially sound, it can also present a slope which will slide you down to the road of never-ending debts. So this is important, and you should always remember it. It is always better to keep in mind that you are refinancing your home to save money so that you can grow your home equity.

Some homeowners make use of the equity in their homes so that they will be able to cover up significant household expenses,

• One being the costs of remodeling their house, by doing this, they also say that the remodeling done will add up to the home's value.
• Or a college education of a child.
• Another consideration is because the mortgage interest is tax deductible.

Still, a lot of other homeowners refinance so that they can consolidate their financial debt. On the outside, a high-interest replaced by a low-interest one in the form of mortgaging will appear like a good idea. But then, when you look at the reality behind it, refinancing does not in any way bring along with it a dose that will automatically bring financial wisdom.

Because once you study it closer,
when you jump on a high-interest offer, expensive cards or credit cards, for example.
You will do it all over again after the refinance mortgage gives you credit available for you to do it. In reality, this creates a loss equal to a quadruple including the following:

• wasted refinancing fees,
• lost equity of your house,
• more and more years of payments with interest on the newer mortgage all of which resulted in the endless accumulation of the debt cycle.

So your question will be, should I refinance?
The answer here will be just simple. Refinancing your mortgage is a good financial idea,

• if it will reduce your payment on your mortgage,

• if it will build equity in a quick way,

• and if it will shorten your loan terms.

If you use refinancing loan carefully, this can be a very valuable and excellent tool in actually getting your existing debt under your control.

So, before you make such move of refinancing, take a very closer look at your present financial and debt situation and then ask this important question to yourself:

How long do I plan to live in this house?

Another question worth considering is:

How much will you save once you refinanced your home loan?

Never forget also that generally, refinancing costs between 3 and 6% of the principal amount of your loan.
And it will take you several years to recoup that particular cost with the much-needed savings you will generate in having a lower refinance rates or a shorter term. This is why when you actually decide to stay in your house for a couple for years, the actual cost of this refinancing may negate any potential savings;
And it is also wise to heed that a prude homeowner is always striving to look for different ways possible

• to reduce the debt,
• build the needed equity,
• to save more importantly money,
• and eventually, eliminate the mortgage payment.

And that deciding to take cash out of the equity if ever you will refinance will not in any way help you in achieving any of your goals.

mortgage calculator

4 Reasons For Refinance Mortgage

1. If you are paying too much every month for your mortgage it may be time to refinance. A drop in interest rates could mean big savings for you. If you have made your payments on time and have a good overall credit score refinancing at a lower mortgage rate could lower your monthly payment and help you have more money at the end of the month,

2. If you have built up some equity in your home and you need to access some cash refinancing your mortgage could be just the place to get it. If property values have increased since you took out your mortgage loan you are sitting on a pile of money that could come in handy.

Banks do not really care about what you want the money for. Common reasons to pull out some cash on the equity of your home could include paying for your daughter’s wedding, doing a home improvement, taking a vacation, or paying for college tuition.

All the bank wants to see is that you have a way to repay the refinance loan and they are secured by the equity in your home when they do the loan.

3. If you have an adjustable rate mortgage that has crept up and is getting ready to roll into a high fixed rate this may be another reason to refinance. People take out an ARM to get a lower rate and to be able to qualify for a little bit more expensive home.

After a number of years the ARM will be ready to settle into a fixed rate loan. Depending on the fixed rate you may be able to do better by refinancing. Your mortgage loan professional can help you decide the best route for you to go if this is the case for you.

4. One other reason that people look at refinancing is to shorten the length of the loan. That is commonly done when you want to go from a 30-year loan to a 15-year loan.

If your income has gone up and you determine you want to stay in the home you have for many years to come then this makes sense. Paying off your loan early gives you the peace of mind of knowing you own your home.

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What can you gain from a mortgage refinance?

A lot of people don't think about mortgage refinancing because they often believe that they can get nothing out of it. In fact, mortgage refinement has more to offer that people don't know about it. Read on to learn more ways on how you can benefit from it.

1. reducing the term of your mortgage

If you can manage to pay for the required monthly payments all the time, try reducing the term of your mortgage when you plan to refinance. If you do this, you can get very low rates that may be as low as payment for a 20-year loan for your current 30-year loan. The shorter the term of your loan, the lower your interest rates will be. Refinancing for a lower mortgage can help you save at least $ 300 every month! That amount of money can you use for other important bills.

2. future expense

There are a lot of future expenses to consider, such as your child's tuition, medical bills, leisurely expenses and much more. While you're refinancing your current loan, inquire if you can still borrow a few more and check out its effect on your current loan.

3. Changing your ARM

Changing your ARM or your adjustable rate mortgage into a fixed rate loan while the rates are low is another technique, though you may have to sacrifice a lower payment for this. If you can refinance at the reduced loan amount, your monthly payment will stay the same for the whole term of your loan.

4. combine your mortgages

Did you know that you can combine your mortgages and benefit out of it? Combining two mortgages will get you less than 80 % of the real value of your home then you can just choose a cash-out to refinance to pay off your second loan. The monthly payment that you'll be making will increase because you are paying more than just the interest on your second mortgage, also, if the prime rate goes up, you'll be benefiting from it as well.

5. split the loan

Huge mortgages or home loans that are more than $ 500, 000 tend to have higher interest rates. If you have one just like this, you can split the loan into two to save up for it. Your first mortgage will be no higher than $ 5000, 000 and your second mortgage will be the home equity line of credit (HELOC). The borrower will benefit a lot from this because they usually get to pay down the HELOC in 10 years or less. And if you can pay off the HELOC within ten years, you'll be left with a low-rate first mortgage. If however, you want to refinance a jumbo loan into a first mortgage and line of credit, most lenders will ask you to have a 20% equity or for some, a 15% equity.

see also: Do you qualify for a harp refinance?

conclusion

Don't forget, good financial news tends to earn mortgage rates go up, and bad financial news tends to make mortgage rates go down.

Obama’s harp program – The home affordable refinance plan.

In March 2009, the FHFA and the Department of the Treasury called the harp program into life.

The U.S. housing bubble crashed in 2008, and many borrowers were in a difficult situation.

Traditionally, banks require a loan to value ratio of 80% or less to get a refinancing loan without a private mortgage insurance.
However, millions of homeowners lost a significant part of the value of their homes. The Home Value drops below the balance of their mortgages.

“Take for example a house that was purchased for $160,000 but is now worth $100,000 due to the market decline. Further, assume the homeowner owes $120,000 on the mortgage. In this scenario, the loan-to-value ratio would be 120%, and if the homeowner chose to refinance, he would also have to pay for private mortgage insurance. If the homeowner were not already paying for PMI, the added cost could nullify much of the benefit of refinancing, so the homeowner could be effectively prohibited from refinancing
harp provides borrowers, who may not otherwise qualify for refinancing because of declining home values or reduced access to mortgage insurance, the ability to refinance their mortgages into a lower interest rate and/or more stable mortgage product.”

What is harp program for the mortgage and is it real?

YES, the home affordable refinance plan is real. It is a government refinance program (you can call it: president’s mortgage relief program; or: Obama refinance program) The harp loan program helps homeowners who are unable to refinance due to a decline in their home’s value.

When does the harp program end?

The harp program extended through September 30, 2017.

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What are the harp requirements?

There are certain criteria to qualify for a harp refinance. Maybe the mortgage service has additional harp loan requirements, too.
You can find the government harp eligibility in the list below.

• Fannie Mae or Freddie Mac must own or guarantee the loan.
• The loan was originated on or before May 31, 2009.
• The current loan-to-value (LTV) ratio must be greater than 80 percent.
• The borrower must be current on their mortgage with no late payment in the last six months and no more than one late payment in the last 12 months.

Are You Eligible for HARP?

official infographic

Frequently Asked Questions from Quickenloans.com

What’s the minimum credit score for refinancing with HARP?

Homeowners with credit scores as low as 580 can refinance with HARP.

Is HARP the only way to refinance my mortgage?

HARP is just one of several options available to homeowners who want to refinance. It’s unique in that it’s the only refinance program that allows borrowers who have little to no equity in their homes to benefit from low interest rates.

Can I refinance my condo or investment property with HARP?

Yes!

Do I need an appraisal to refinance with HARP?

In many cases, you won’t need to get an appraisal, but the only way to know for sure is to talk with a Home Loan Expert. Call (800) 251–9080 to get in touch with a Home Loan Expert now.

How can I start refinancing with HARP?

The first step is to learn if your mortgage is owned or guaranteed by Freddie Mac or Fannie Mae. Tell us a little bit about you and your home, and we’ll look up your loan to see if you’re eligible. You can also call us at (800) 251–9080 to see what your options are.

My current servicer or mortgage lender can’t help me. Does this mean I don’t qualify for HARP?

Not at all! Your current servicer might have HARP requirements that prevent them from helping you. One of our Home Loan Experts can tell you if you’re eligible to refinance through HARP with Quicken Loans, or you can see if you’re eligible here.

If I refinance with HARP, and I have little or no equity, will I have to pay private mortgage insurance (PMI)?

If you’re not paying PMI today, you might not have to pay it when you refinance with HARP. The only way to know for sure whether you’ll be required to pay PMI is by calling (800) 251–9080 to talk with one of our Home Loan Experts.

If I’m current on my mortgage payments, can I refinance with HARP?

Yes! HARP was designed to help responsible homeowners who are current on their mortgages but have been unable to take advantage of lower interest rates because their homes have decreased in value.

Read this article to find the best mortgage lenders for refinancing.

HARP — The Roadmap to Savings._

How to Start with your harp program?

Watch this short video!

Resources

Wikipedia

Quickenloans.com

www.fhfa.gov

www.harp.gov