Decide how much you can afford for a home before you shop for it, not after. Sadly, most borrowers have no idea how much they can afford to pay for a home and end up wasting their time looking at houses that they discover, once they apply for a mortgage, are way out of their price range.

If you understand how banks determine the mortgage you can afford by examining your income, amount of down payment and total closing costs, you will have a better concept of this. What your expenses are and will be is another important factor in this determination since the lender will want to make sure you can cover the monthly payment after these other expenses.

What you can afford to pay will be determined by ratios that are based on factors such as income and expense, outstanding debt, amount of deposit and closing costs.

You can try to estimate these costs yourself, or you can make it easy on yourself by consulting with a mortgage professional who will do this for you.

For most people, affording the down payment is the biggest barrier to purchasing a home. People don?t routinely save as much as they used to, so often they will not have any decent balances in savings accounts. We can forget about no down payment mortgages now that the credit crunch in the real estate market has forced lenders to be stricter about their terms.

Assume at least a 10% deposit to buy a home. So, if you are looking in the $200,000 price range, you have to have $20,000 on hand, plus enough for closing costs. Lenders will be happy to give you an estimate of your closing costs.

So let us suppose that you need $25,000 to start looking for a house. Now the lender will ask whether you can afford the monthly payments. You can figure how much you can pay based on income and current expenses if you go to one of the many calculators available on the net, or you can take a simpler route and speak to a mortgage consultant.

The traditional rule is that your housing costs should not exceed 25% of your income. But this does not reflect extraneous credit card debt. They have to make sure you have adequate funds to pay the mortgage after you have paid for your food, utilities, education and other such expenses. A high credit card debt means that you will have that much less available for your basic needs.

Without these additional issues, figure that a monthly income of $6,000 means that you can manage $1,500 in mortgage, taxes and insurance. This is the best way to shop for a house, once you really know how much you can afford to pay for it.

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4. Best Life Insurance Quote Canada: Why Does Your Mortgage Insurance Cost What it Does?
5. Things you need to consider when buying a House

Tags: home, insurance, Life Insurance, mortgage, mortgage life insurance, Mortgages, real estate

This entry was posted on Tuesday, October 13th, 2009 at 2:47 am and is filed under Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.