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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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