First Things First - How Much Can You Easily Afford?

You've been renting your residence for some years now and you are more than tired of paying monthly rent and having no equity in your home. Sound familiar? Most people who rent spend their days dreaming of a home of their own. Not only because it is a place to raise their family, but it helps to secure their future, and it's a great investment if done properly.

The first step in this process is to calculate just how much of a home, or more specifically a mortgage, you can afford without jeopardizing the investment itself. Once you have determined what that amount is, you can then start to shop for both the property of your dreams, and the mortgage that will make it all a reality.

There are several ways to calculate the amount of a loan that you can afford to take on with confidence and assurance, so that it will not eventually become a burden and cause you to default, lose your home and your investment. A very basic way to approach this is to base your mortgage ceiling on the following formula: Your gross income, times 3.25. If there is someone who will be jointly borrowing with you, their income can also be figured into the equation in this manner: 3.25 for you income plus their income or, 2.5 times your combined incomes. To arrive at the very most you would be able to afford, take the figures you have just arrived at and add your expected down payment figure to them.

Note: When calculating the amount of ready cash for deposit do not neglect to put some aside for all of the additional costs that can, and will arise:

1. Appraisals
   
2. Inspections
   
3. Surveys
   
4. Title Searches
   
5. Credit Reports
   
6. Origination Fees
   
7. Points
   
8. Interest Rate Lock-in Fees
   
9. Attorney Fees
   
10. Private Mortgage Insurance PMI (if the LTV is greater than 80%)
    
11. Closing Fees
    
12. Commissions (if they apply)
    
13. Re-location/Moving Expenses

Further expenses, relative to owning your own home rather than renting, need to also be considered. When calculating your ability to own a home, not only the mortgage and its related expenses come into play. The actual maintenance and on-going costs should also be considered.

Here Are Just A few Of The Typical Expenses That You Will Need To Consider:

1. Electric, water and sewerage, telephone, cable TV, Internet, refuse removal, possibly landscape and pool maintenance and even snow removal (depending on what region of the country your property is located in).
   
2. Routine and emergency maintenance and repairs.
   
3. Insurance policies, other than those associated with the property and mortgage itself.
   Another way to arrive at the amount you can afford is by calculating your debt-to-income ratio.

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