How Much Do I Qualify For?

When buying a home, it is helpful to determine the type of home you’ll like and how much you can afford before beginning your search.  Most lenders allocate approximately 28% of your GROSS MONTHLY INCOME to housing expenses.  Housing expenses includes principal, interest, house taxes and house insurance.  To get an idea of how much you can afford to pay each month for a home, multiply your GROSS MONTHLY INCOME by 28%.

3d-man-scratching-head-197x300When coupled with outstanding loans/debt, the total for your debt service should not exceed 36% of your gross monthly income.  Some lenders may have a more liberal requirement or loan interest rate which may increase your purchasing power.

Mortgage interest, property taxes, loan fees or what they call in the financial world “points”  are currently tax deductible .  Points are generally deductible in the year paid.  One point is equivalent to 1% of your mortgage amount.  If you are in the 28% tax bracket, this is equivalent to receiving a 28% discount on your mortgage interest and property taxes.  During the first years of your mortgage, your tax savings are especially high because most of your monthly payment goes toward the loan interest.  So in the first years of your mortgage, you will see most of your monthly or bi-weekly payments going towards interest first…then touching the principal.