STEP 2: DETERMINE HOME AFFORDABILITY - First-time Home Buyer: A 12-STEP GUIDE TO BUYING A HOME IN THE S.F. EAST BAY
Carlos Camargo, Ph.D.
????? Retired REALTOR? | American Studies Scholar/Educator, Tech Professional & Development Boss ?????
- STEP TWO: DETERMINE HOME AFFORDABILITY -
When buying a home, mortgage lenders will look at your income, your assets, the down payment you have, as well as your other debts, liabilities, and obligations. It is recommended that homebuyers look for homes that cost no more than three to five times their annual household income, assuming a 20% down payment and only moderate debt in addition to a new housing payment.
Another general guideline is that a buyer’s total debt payments should not exceed 36% of their total household income, a ratio known as debt-to-income (DTI).
Lenders use this guideline because it has been shown to be a level at which most borrowers can comfortably repay their mortgage, while still having money left over for "life".
The "36% figure" is just a recommendation, however. Some households are able to manage ratios in excess of 36 percent and, for some households, 36 percent is too high.
The best approach is to work with a mortgage professional to determine exactly what you can afford, both from a loan approval standpoint, as well as a comfort level for making the monthly payments.
The Costs of Homeownership
Owning a home is a big responsibility that comes with great rewards. Budgeting is important, so plan for sudden expenses that may arise in addition to your regular monthly expenses. Don’t forget to include all costs in your monthly budget including:
- Property taxes and special assessments
- Home/hazard insurance
- Property maintenance
- Association and membership fees (for condominiums, townhomes and some developments).
Some of the fees mentioned above are part of your monthly mortgage payment while others are not – be sure to ask about how these fees are to be paid.
- See how much income you'd need to afford a home in CA cities. Read more here: https://www.sacbee.com/site-services/databases/article13255952.html#storylink=cpy
- The salary you must earn to buy a home in 27 metros:
https://www.hsh.com/finance/mortgage/salary-home-buying-25-cities.html
