Avoid This First Time Homebuyer Mistake That Could Cost Thousands! Posted By : Carl Pruitt
11.12.2006 15:15
There are two vital things first time homebuyers must consider when deciding how much they can afford to pay for a home. The first and by far the most important factor they should consider is how high a payment they feel comfortable making and can reasonably pay. The second criteria are the debt ratios allowed by their loan program or loan approval. However, if they base their numbers on the lender's allowable debt ratio, the payment first time homebuyers qualify for is often much more than they will be comfortable paying.
If you wish to become a first time homebuyer, the best way to determine how much of a house payment you can be comfortable paying is to draft a simple monthly budget.
1. List your monthly income from all sources. That total is your gross monthly income.
2. Subtract from your gross income any taxes you pay or owe monthly - Federal taxes, state taxes, FICA (social security taxes), and Medicare taxes. Don't forget to include the monthly amount of any estimated taxes you have to pay. What is left is your net income. Although this will not usually be considered in the lender's debt ratio computation, it is very important in your personal analysis
3. Next list your other monthly expenses, such as savings, utilities, groceries, insurance, car payments, tuition, clothing, entertainment, etc. (If some are payable yearly or quarterly, divide the amounts by 12 or 4 and add that to the monthly expenses.) Do not include current rent or housing payments, since those would no longer be applicable.
4. Subtract the total of your monthly expenses from your net income. The resulting amount is what is left for a house payment.
Of course, you can always adjust your discretionary spending to leave more for a house payment. Just be sure to be realistic if you do that. First time buyers often try to bite off more than they can chew. An unrealistic budget can leave you in a financial bind when reality sets in. Don't count $200 a month as enough to feed your family of four. Make sure your numbers make sense for your family and don't leave you with a nice house and no food to eat.
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