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Can You Buy?
Whether you can afford to buy depends on your
income and your debts.
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 When you're thinking
about buying a home, you have to take a hard look at your finances. The
first question is whether you have enough cash for a down payment,
traditionally 10% to 20% of the purchase price. The next is whether you'll
be able to borrow the rest of what you need. |
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CONTRIBUTING
FACTORS The type of home you can afford to buy is directly influenced
by the interest rate you'll be paying on your mortgage. For example, if
rates are low and you're paying 6%, you could borrow $200,000 for 30 years
and repay $1,199 a month. But if rates were 10%, as they have been in some
years, it would cost almost that much — $1,097 — to borrow just
$125,000 for 30 years.
To find out how much you'll be able to borrow at current interest rates,
you can use a loan and mortgage calculator. They're available online at
many lending sites. Or you can buy a loan and mortgage payment table that
lists the monthly mortgage payments for different loan amounts at various
rates over a number of different terms. They're available in most bookstores.
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PAYING
THE BILLS Paying your mortgage isn't the only financial responsibility
that's involved with owning your own home. Among the added expenses you
may initially overlook — but will almost certainly encounter —
are the costs of:
Insurance. You'll need enough homeowner's insurance to cover the
mortgage amount. The insurance company may insist that your coverage equal
the home's full replacement value.
Property taxes. Local school and property taxes vary enormously from
place to place. Check before you buy to determine how much those costs will
add to your housing bill.
Commuting. Communities with convenient public transportation may
cost more to live in, but can save you time and transportation expenses.
Schools. Paying more for a home in an area with good public schools
may be cheaper in the long run than paying for private school — especially
if you have several children. And houses in strong school districts often
resell more easily and at higher prices.
Maintenance charges. Condominium and co-op charges for monthly expenses
can escalate rapidly, so you should anticipate those costs in your purchase
decision.
OTHER
ROUTES TO OWNERSHIP If the down payment and income requirements make owning
a home seem out of the question, you may want to look for other ways to
buy. There are some government-backed programs that make qualifying for
a mortgage easier by reducing the amount you need upfront. You may also
want to check:
- Rent-to-buy
option. You can sometimes arrange with an individual owner or developer
to rent a home that's for sale, with your monthly payments counting
toward the purchase price when you are able to buy.
- Gifts.
The FHA has introduced a variation on the traditional bridal registry,
to encourage a couple's family and friends to put money aside for a
down payment on a home bought with an FHA mortgage. It may not be a
perfect solution, but it can be a good start toward eventual ownership.
- Auctions.
Home auctions, often designed to move property that hasn't sold or has
been repossessed by a lender, often mean you can get a good price. If
your bid is accepted, however, you may need to make a substantial down
payment on the spot.
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© 2006 by Lightbulb Press, Inc.
All Rights Reserved.
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