Home Buyers: Don’t Wait Forever for ‘The One’

When you’re dating, you can spend years searching for the perfect relationship only to—possibly—wait too long and miss out on something great. Suddenly, over your sad microwave meal and bottle of cheap red, you’re looking back on your life choices, wondering what could have been if you hadn’t been so darned picky.

Well, the same goes for house hunting. You can drive yourself crazy searching for your dream home. You’ve found houses that have come close, after all. So the perfect one is bound to appear soon, right?

Not necessarily. We know the hunt can be emotionally draining, but at some point you have to go from house hunter to home owner.

We’re not encouraging you to make a choice that will fill you with buyer’s remorse. But to borrow a line from the Rolling Stones: You can’t always get what you want, but if you try sometimes … you get what you need.

We can’t give you love advice (and trust us, you would not want us to), but we do happen to know a few things about real estate. Here are three questions to ask yourself; the answers will help you determine whether it’s time to settle on a home that might notbe what your dreams are made of.

1. Are my expectations realistic?

Everyone has a dream home. Mine is a Craftsman with Victorian high ceilings, art deco details, and a Mid-Century Modern feel. But here’s the thing. That Frankenstein of architectural styles doesn’t exist—and your dream home probably doesn’t either.

“There is no such thing as a ‘perfect home,’” says Ryan Fitzgerald, Realtor® and owner of Raleigh Realty in Raleigh, NC.

There’s always going to be something not so lovable in each house you view. The key to finding the right home is setting realistic expectations.

“You can find a home that meets almost all of what you are looking for,” Fitzgerald says.

Make a list of your dream features and amenities before you start house hunting—but be willing to let some of those features go once you start looking at properties. It helps to score each feature on a scale of 1 to 10—that way you (and your partner, if you have one) are on the same page about which amenities are deal breakers and which are simply nice to have.

2. How many properties have I viewed?

Once you’re house hunting, it can be nearly impossible to decide when you’ve looked at enough houses. After all, the perfect house could be listed any day now.

Go ahead and view online listings as much as you want. There’s no harm in real estate stalking in your spare time, but you should set a limit for actual viewings.

“If you go view more than eight homes [without finding anything], there’s a good chance you’re confused as to what you’re actually looking for,” Fitzgerald says. “You’re trying to piece together a home that doesn’t exist.”

If you find that you’re searching for your own Frankenstein (it won’t work, I promise), take a moment and ask yourself how many homes you’ve visited. Have you reached the (self-imposed) cap? If so, make a list of each property’s strengths and weakness, and then get ready to compromise.

3. What am I willing to compromise?

If you’ve set realistic expectations and looked at more than a few houses, it’s time to start making some tough decisions. It might feel like settling, but you’ll probably thank us later when you’re finally a homeowner.

Just make sure you’re not compromising on something you’ll regret later.

“If you’re going to compromise, do not compromise on location,” Fitzgerald says.

The real estate adage “location, location, location” bears repeating here. After all, a great house won’t matter much if you’re driving two hours to work every day or the only nearby grocery store closes at 7 p.m.

If you’re not sure where to compromise, ask your Realtor. That’s what they’re there for.

The exception to the rule

After months of searching (especially in competitive markets), you might feel the pressure to choose something—anything—just to achieve homeownership and stop throwing away your money on rent.

We’re going to contradict ourselves a bit here and tell you this: Sometimes it’s OK to keep looking. When you’re deciding on a home, you should always consider the current market, even if it means you’ll be shopping for a little while longer.

“If you are having trouble finding a home and you have proper expectations, don’t settle—especially if you’re in a hot market,” Fitzgerald says.

If you’re in a sellers’ market, homes can go quickly and you might just be missing the window of opportunity. It might make sense to wait a little longer than rush to try to beat out an overzealous buyer.

After all, competition can breed short-lived desire—and you don’t want to be stuck with a dud after the admirers have moved on to the next attraction.

Shared from:  http://www.realtor.com/advice/buy/when-should-you-settle/

Buying a Second Home in Seven Steps

Thinking about buying a second home? Whether you're looking for an investment property, a getaway, or a place to eventually retire, plan to take these seven important steps.

One: Decide Whether a Second Home Makes Financial Sense

Whether or not you consider yourself an investor, you no doubt want your second house purchase to be a sound financial move. Yet many second-home owners complain that the house -- including not just the purchase price, but ongoing expenses -- ended up costing more than they'd ever imagined. You'll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won't be there every day (such as hiring a management company and the relatively high cost of hazard insurance). Then you'll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income (it's often not enough to cover your monthly costs).

Two: Decide Where, and What Type of Home You'll Buy

A home in a badly chosen location won't serve anyone's goals -- an investor can't resell or rent it, a vacationer won't enjoy it, and a future retiree may have to pick up and move again. You'll need to rely on both market research and your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.

The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep. For example, condos, townhouses, and co-ops typically require less maintenance, since the areas of the property outside your unit are governed and maintained by a community association (of which you'll be a member). However, you'll pay for that maintenance in the form of monthly fees and special assessments.

Three: Look into the Tax Implications

Second-home owners need to worry about both property taxes (which vary by state and locality) and, if renting out the place, income tax. Though taxes are inevitably a burden, a little advance planning during the house-hunting process can save you thousands of dollars a year. For example, sometimes buying a home just over a town's border can significantly trim your annual property tax bill. And if you're renting out a vacation property, the amount of days you yourself spend there can make a difference in how much you'll owe in income tax.

Four: Come up With Short-Term Cash and Long-Term Financing

Most people pay for their home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. In order to come up with down payment cash (which should be at least 20% of the purchase price), you may need to get creative. Using the equity in your primary home, borrowing against a life insurance policy, or refinancing your car are among the possibilities.

Most buyers will also need to get a home loan to help with the rest of the financing. Shop around: By reviewing the various mortgage options and sample payment schedules and factoring in your own short- and long-term goals, you should be able to find a mortgage that suits you.

Five: Consider Nontraditional Financing Methods

One unique way to help finance your second home is to tap the "Bank of Family and Friends." Borrowing from parents, siblings, or close friends lets you keep the tens of thousands of dollars in interest you'll pay over the life of your mortgage loan within your circle, rather than handing it over to a bank.

Another money-saving approach is to partner with another purchaser; for example; sharing a vacation home in the sun. Shared ownership is a growing trend -- but not one to rush into lightly. You'll want to start by determining whether co-ownership with a particular person is likely to work. Then draft a written agreement to spell out how ongoing costs will be split and deal with other potential sources of contention, such as what happens if one of you wants out after a few years or if one of you dies.

Six: If You'll Be a Landlord, Be Prepared

Some second-home owners plan to rent out their properties long-term with the idea of eventually turning a profit (rental properties usually take some years to make money). Others just want to rent out their property periodically as a means to offset expenses. Either way, you're taking on the role of a landlord, which means more than just following your instincts. Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved. Also, the obligations of managing a long-term rental are quite different from those of a periodic rental.

For more on becoming a landlord, see First-Time Landlord; Renting Out a Single-Family Home, by Janet Portman, Marcia Stewart, and Michael Molinski.

Seven: Take Steps to Protect Your Second Home

Protecting your property starts before you buy and continues long afterwards. For example, you'll want to get a proper home inspection prior to purchasing, so as to deal with some repair issues up front and get a sense of what other repairs may be looming.

You may need to purchase title insurance -- typically required by the lender -- in case problems such as past ownership or debt claims on the property surface after the purchase.

Your lender will also require that you carry hazard insurance, to protect your property against damage from such causes as theft, fire, flooding, or windstorms. The cost of insurance for second homes is usually higher than for first homes, since you won't be there as much. You will probably want to add liability insurance, covering you and members of your household for accidental injuries to your visitors. (Together, hazard plus liability insurance add up to the standard homeowners' insurance package.) Taking these protective steps will guard not only your home, but your peace of mind.

Shared from:  http://www.nolo.com/legal-encyclopedia/buying-second-home-seven-steps-30010.html

Focus On Functionality When Buying Your Home

You have to live somewhere. For most of us, the choice is simply functional -- we all need food, clothing, and shelter, but we also want our homes to function well for our needs and preferences.
Functionality begins with making a good decision, based on your requirements and what you can afford. Whether you rent or buy, you decide which home to choose based on affordability, availability and functionality.

Renting is a great option for the short term, when you're building your savings and may have another move or two before settling down to a home of your own. The functions of renting are independence, affordability, and mobility. As your life matures, you may become more interested in homebuying because your ideas of functionality may change.

You may want more room, privacy, and better access to certain amenities, schools, family or work. You may want a different lifestyle that your current neighborhood doesn't foster. You may want the autonomy to choose and change the style of your home so you can enjoy your surroundings with your own décor. You may want a home that allows you to expand your interests, such as cooking in a larger kitchen, creating art in a studio, or having a large back yard for gardening and entertaining.

As your preferences become more focused and as the needs of your household change, you may find that owning a home is more suitable for your lifestyle. But, affordability has to be part of the function. In most areas, you can buy a home more affordably than renting.
Let's say that you find a 2400-square foot home for sale or lease. You may be able to rent it for $1.25 per square foot, or $3,000 per month, but you can buy the property for $1.65 per square foot or $400,000. When you finance the same property over 30 years, your payment is closer to $1,900. Add in typical property taxes and hazard insurance, and you're at about $2,700 per month, making buying the home a better choice for the long term.

You trade the mobility of renting for the opportunity to build equity. When you own a home, it usually takes several years of ownership before you can build enough equity to cover your transaction costs, making owning a home a long-term investment.


Functionality is about how the home itself can serve you. Square footage can indicate if a home is large enough to have the features you want, but you won't know until you go inside if the floor plan, features and number of beds and baths suit your wish list.

Choosing a home is really about how you want to use the space you have. As the owner, you have the option to leave things as they are or you can add or remove features as you wish, to improve the functionality of your home.

Whether you rent or buy, choosing a home is about getting the most benefit for your money. It should be a decision based on how well the location, space, and design can serve your needs and pocketbook.

Shared from:  http://realtytimes.com/consumeradvice/buyersadvice1/item/37585-20150820-focus-on-functionality-when-buying-your-home

10 Home-Buying Costs You Need to Know About

If you’re a first-time home buyer, you might get a little queasy when the last line of your good-faith estimate comes in at several thousand dollars. And after the color returns to your face, you might also be a little more than perplexed by some of those fees.

Knowing what you’re paying for—like these 10 common costs—can ease that check-writing pain.

1. Earnest money

To prove you’re “earnest” in your purchase commitment, expect to plunk down 1% to 2% of the total purchase price as an earnest money deposit. This amount can change depending on market factors. If demand in your area is high, a seller could expect a larger deposit. If the market is cold, a seller could be happy with less than 1%.

Other governing factors like state limitations and rules can cap how much earnest money a seller can ask for.

2. Escrow account

An escrow account is basically a way for your mortgage company to make sure you have enough money to cover related taxes and mortgage insurance. The amount you need to pay varies by location, lender, and loan type. It could cover costs for a few months to a year.

Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but it’s not required for VA loans.

3. Origination

The origination fee is a hefty one. It’s the price you pay the loan officer or broker for completing the loan, and it includes underwriting, originating, and processing costs.

The origination fee is a small percentage of the total loan. A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.

4. Inspection

You want to be assured your new home is structurally sound and free of surprises such as leaks or pests living in the walls. Those assurances come with a price.

• Home inspection: This is critical for home buyers. A good inspector will be able to notify you of structural problems, flooding issues, and other potentially serious problems. Expect to pay $300 to $500 for a home inspection, although cost varies by location.

• Radon inspection: An EPA-recommended step, this inspection will determine whether your prospective home has elevated levels of the cancer-causing agent radon. A professional radon inspection can cost several hundred dollars.

• Pest inspections: Roaches are one thing. Termites are a whole different story. Expect to pay up to $150 for a termite inspection.

5. Attorney

Some states, such as Georgia, require an attorney to be present at closing. In some other areas, this is optional. If you use a lawyer, expect to cover the costs, which vary by area and lawyer.

It’s typical for mortgage companies to have a lawyer on their end, although they should cover the bill.

6. Credit check

Just because you can get your credit report for free doesn’t mean your lender can (and it will actually pull all three). You have to reimburse the lender, usually around $30.

7. Extra insurance

If you live in a hazard-prone area, you might need to purchase extra insurance, like forflood.

8. Appraisal

Your lender won’t loan you money for a home without knowing what its fair market value is. An appraisal will cost $200 to $400, depending on location and property size.

9. Title company

You pay this to the title company to make sure the property’s title is free and clear. Your lender will recommend a title company, but you can also shop around for one.

10. Survey

It’s not required in all instances, but your lender may require a professional surveyor to determine exactly where your property lines are drawn. Prices vary widely, but expect to pay at least $100.

Remember: You have bargaining power. Shop around to get a feel for what rates and fees apply in your area. If you aren’t sure what a lender is charging, ask for an explanation—the charge might not be set in stone. If you’re unhappy with a charge, negotiate.

Reposted from:  http://www.realtor.com/advice/10-home-buying-costs-need-know/

Preparing Your Credit to Buy a Home

As the housing market heats up in 2013 and more consumers consider buying a home, it’s important to consider the role that your credit score plays in your ability to secure a mortgage. Conventional mortgage lenders will typically want a FICO score of at least 720, or in some cases 740, but those with a score below 700 may still qualify for an FHA loan.

With that in mind, here’s a look at the steps you should take to prepare your credit before applying for a mortgage.

1. Review your credit report.

Several months before you plan to get a mortgage, check your credit report for any issues. If you generally pay your bills on time, then check your credit two to three months in advance just in case you need to correct any mistakes, says Carolyn Warren, author ofMortgage Rip-Offs and Money Savers and Homebuyers Beware. For those who know they have late payments or other derogatory items on their account, Warren suggests starting six to nine months in advance to clear up those issues.

2. Dispute any inaccuracies.

If your credit report contains errors—for instance, there’s an unpaid item that you’ve actually paid or an account showing up that isn’t yours—you’ll want to file a dispute with the credit reporting agency. A report from the FTC earlier this year shows that roughly a quarter of the reports examined by the commission contained at least one “potentially material” error.

3. Make sure you have several tradelines.

Conventional loans require at least three tradelines (any combination of credit cards, student loans, car loans, and so on) that have been active within the past 12-24 months. FHA loans require two tradelines. It’s fine to have more, but if you have fewer, you won’t qualify for a mortgage. If you need to open additional tradelines, Warren suggests getting a major credit card like a Visa or a Mastercard (not a store credit card) at least six months before you apply for a mortgage and using it for items you would buy anyway. “Never charge more than 30 percent of your allowed limit, and pay it off in full every time you get your bill,” she adds.

4. Leave older credit lines open.

Older, more “seasoned” tradelines help boost your credit score, so leave those credit cards open even if you don’t use them all the time. “A lot of people think, ‘I’ve got six credit cards, I’m going to close the four that I don’t use,’” says Warren. “But that’s a big mistake because your good accounts are adding positive points to your score.” Try to use those credit cards every few months and pay the balance in full so those tradelines remain active.

5. Avoid opening new credit lines.

Once you’re six months away from applying for a mortgage, stop opening new credit lines, as this can temporarily lower your score. “The credit bureau doesn’t know how you’re going to handle that new credit, so because there’s that uncertainty, it’s a risk factor,” says Warren. “Lowering your credit score is not worth that 10 percent discount you’d get from a department store for opening a new credit card.”

6. Stop buying on credit.

In the excitement of buying a house, some people rush out to charge new appliances or furniture before closing. But even if you’re in escrow, having a debt utilization ratio above 30 percent right before closing could disqualify your loan. “Unless you’re gonna pay cash, have patience for your new furniture until after your loan is closed,” says Warren. Also hold off on getting a car loan, as car financing tends to be more lenient than mortgage criteria.

7. Don’t shuffle money around.

When you apply for a mortgage, you’ll need to provide several months of bank statements for your checking and savings accounts. “If you suddenly shut an account or have a large transfer from one account to another, then you’re going to have to paper-trail that whole account too,” says Warren. “Leave your money and your accounts the same for at least three months. It won’t disqualify you but will make a paperwork hassle.”

Reposted from:  http://www.creditsesame.com/blog/how-to-prepare-credit-buy-a-home/

WHEN IS THE BEST TIME TO BUY OR SELL A HOME?

Is it better or worse to buy or sell a home in the fall/winter months verses the spring/summer months? Home sellers and buyers ask us this question often, and the answer isn't so simple.

WHAT ARE CONSIDERED THE FALL/WINTER AND SPRING/SUMMER MONTHS?

Let's define exactly when these time periods are. The Fall and Winter months are between September 1st and February 28 and the Spring and Summer months are between March 1st and August 31st.

DIFFERENCE IN HOME SALES & INVENTORY BETWEEN THESE TIME PERIODS

We pulled the actual data of sales and inventory during those time frames to see if there is actually a difference. We looked at two different towns, Andover, MA and Haverhill, MA. What we found was Andover experiences an increase of about 48% more inventory in the spring/summer and about a 52% increase in unit sales during spring/summer. Haverhill experiences an increase of 13% in inventory during the spring/summer and about a 25% increase in unit sales during spring/summer. So, we've now confirmed there is a difference between unit sales and inventory in spring/summer versus fall/winter. But, does this make a difference in your buying or selling decisions? Let's look at it from the seller & buyer point of views.

SELLING YOUR HOME

If you're home seller, you might consider it to be more beneficial, given your property type, to be on the market when there is less competition since consumers shop by comparison. If there are less homes to compare yours too, it may make more sense for you to sell in the winter instead of the spring/summer when there's a dramatic increase in inventory.

BUYING A HOME

If you're a home buyer, you might think looking for a home during the spring/summer is best since there are a larger selection of homes available at that time. However, the spring/summer has an increase in competition from buyers. So, one could argue that buying a home in the winter makes more sense as a buyer since there is less competition with other buyers allowing you to work more strongly with sellers to get something done.

CONCLUSION

Motivation is the driving force for buying and selling in the winter months. If you're out looking for a home in the winter months, you are a much more serious buyer. When you're selling your home in the winter months, you're a more motivated seller. Deals tend to stick together tighter in the winter months because the participants much more motivated to get something done. Remember, whatever you decide is right for you is when the time is right. So, don't put too much focus on what time of year is the right time. If the time is right for you to buy or sell your home right now, then it makes sense to do it now.

Reposted from:  http://primepropertyteam.realtytimes.com/advicefromagents1/item/32003-when-is-the-best-time-to-buy-or-sell-a-home

10 Questions You Should Ask Mortgage Lenders

1.  What’s the interest rate?

Right off the bat, you should ask your lender for a direct interest rate quote 

as well as the corresponding annual percentage rate (APR) for the loan. Since 

the APR accounts for fees and other loan-related charges, it gives you an 

apples-to-apples comparison among lenders. Don’t be afraid to shop around 

until you find one you’re comfortable with.

2.  How many points does that include?

A point is a fee paid to the lender at closing in exchange for a reduced 
interest rate. (1 point = 1% of your total mortgage amount.) Be sure to ask 
your lender how many points are included in the quoted interest rate and 
what the benefits might be to buying more or fewer points.

3.  How many points does that include?

A point is a fee paid to the lender at closing in exchange for a reduced 
interest rate. (1 point = 1% of your total mortgage amount.) Be sure to ask 
your lender how many points are included in the quoted interest rate and 
what the benefits might be to buying more or fewer points.

4.  When can I lock down the interest rate?

Interest rates always fluctuate. Sometimes locking in a low rate can really 
pay off. Ask your lender when you can lock down a particular rate, and for 
how long. Keep in mind, lenders will usually offer lower interest rates for shorter-term locks and higher interest rates for longer-term locks.

5.  What are my estimated closing costs?

Remember to factor in the various costs and fees associated with buying a 
home. Particularly closing costs. Closing costs include loan-origination fees, 
appraisal fees and attorney fees (if any), to name a few. Ask your lender to estimate what your closing costs might be so you can budget accordingly.

6.  Are there any other costs or fees I should know about?

Be sure to ask your lender for a detailed list of all the costs and fees you 
might encounter during the homebuying process. The more information 
you can collect up front, the more prepared you’ll be should you run into any unexpected expenses along the way.

7.  What’s the difference between a fixed-rate and an adjustable-rate mortgage?

A fixed-rate mortgage keeps the same interest rate for the life of the loan, 
typically 15- or 30-year terms. This keeps your monthly payment for principal 
and interest steady and predictable over time. Adjustable-rate mortgages, or 
ARMs, have interest rates that change based on the market, so your payment 
will go up and down. Most ARMs are based on a 30-year term and typically 
start with an initial fixed interest rate for a specific period of time, usually 5, 7 or 10 years.

8.  Are there any special requirements I should be aware of?

There are all sorts of qualification guidelines for homebuyers applying 
for a mortgage. Typical requirements relate to income level compared 
to debt, employment status and credit history. But, if you’re a military 
veteran or first-time homebuyer, you may also be eligible for special 
government-sponsored mortgage programs. Talk to your lender to see 
what you might qualify for.

9.  Can you estimate when the closing will be?

A lot of factors help determine when your exact closing date will be—many 
of which are completely out of your control. Ask your lender for a ballpark 
estimate of when you might expect to close. That way you’ll at least have a 
rough idea of the timetable you’re working with.

10.  Is there anything that could cause a delay?

The best way to avoid delays in your closing is to stay in touch with 
your lender and always provide the most up-to-date and accurate 
documentation in a timely fashion.

Reposted from:  https://www.bettermoneyhabits.com/assets/images/v.2.0/tiles/infographics/pdf/10-questions-to-ask-mortgage-lender.pdf

How Much Should Your Mortgage Be?

Learn the rules of home affordability to figure out what percentage of your gross monthly income you can safely spend on housing. Caution: Your mortgage lender may very well approve you for a bigger mortgage that you can actually afford.

This question often comes up among first-time home buyers:

• What percentage of my monthly income can I afford to spend on my mortgage payment?
• Does that percentage include property taxes? Private mortgage insurance (PMI) or homeowners insurance?

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property-taxes and all housing-related insurance — homeowner’s insurance as well as PMI. As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

In this article on how the mortgage crash of the late 2000s changed rules for first-time home buyers, the New York Times reported:

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

Let’s remember that even in the post-crisis lending world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and home insurance payments “conservative”. I’d call it average.

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-home income.

Your mortgage payment should not be more than 25 percent of your take-home pay and you should get a 15-year or less fixed-rate mortgage…Now, you can probably qualify for a much larger loan than what 25 percent of your take-home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars and education.

Notice that Ramsey says 25 percent of your take-home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world most buyers take 30-year mortgages. This is what I’d call conservative.

Not everybody is as debt-adverse as Ramsey — and following his one-size-fits-all advice has risks. You just have to remember: the more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

Another reader put it this way:

• Your mortgage payment should be equal to one week’s paycheck.
• Your mortgage payment plus all other debt should be no greater than two weeks’ paycheck.

That’s on the conservative side, too. One week’s paycheck is about 23 percent of your monthly (after-tax) income.

If I had to set a rule, it would be this:

• Aim to keep your mortgage payment at or below 25 percent of your gross monthly income.
• Aim to keep your total debt loan at or below 33 percent of your gross monthly income.

As some commenters have pointed out, while it may be possible to buy a decent home in a small midwestern town for $100,000 and well within these ratios — workers in New York or San Francisco will need to spend five times that amount just to get a hole in the wall. Yes, people tend to earn more in these high cost-of-living areas, but not that much more. Does it mean they shouldn’t buy a home? Not necessarily, they’ll simply have to make trade-offs to buy in those areas.

Just remember that when you obtain mortgage pre-approval, lenders will likely approve you for a loan amount with payments of up to 30 or 35 percent of your pretax income. That may tempt you to take on more home than you should. Don’t just assume “if the bank approved it; I can afford it”. They are two very different things.

Click here to use the home affordability calculator.

Reposted from: http://www.moneyunder30.com/percentage-income-mortgage-payments#67T7i3OC8pUFFpiv.99