- BUYING RESOURCES -

What can you really afford?






Determine how much home you can afford, including a down payment and closing costs







- HOW MUCH CAN YOU AFFORD? -

Lenders will look at your monthly income and compare it to the monthly cost of the home and all your other debts.

There are two main ratios lenders look at: Housing Expense Ratio and Debt-To-Income Ratio.


HOUSING EXPENSE RATIO
Compares housing expenses to pre-tax income

Most traditional lenders want a ratio under 28%, but loans backed by Fannie Mae and Freddie Mac will accept a ratio as high as 31%.


HOUSING EXPENSE RATIO

PRE-TAX MONTHLY INCOME
COST OF HOUSING PAYMENT

Take your monthly PRE-tax income and divide it by the cost of the housing payment. In the housing payment amount, be sure to include taxes, insurance, association fees, and PMI.


Calculate your housing expense ratio here:



DEBT TO INCOME RATIO
Compares housing expenses AND other monthly expenses to pre-tax income

Most traditional lenders want a ratio under 36%, but loans backed by Fannie Mae and Freddie Mac will accept a ratio as high as 43%.


DEBT TO INCOME RATIO

PRE-TAX MONTHLY INCOME
COST OF HOUSING PAYMENT + OTHER MONTHLY DEBT

Take your monthly PRE-tax income and divide it by the cost of a housing payment (including taxes, insurance, association fees, and PMI) PLUS other monthly debt payments like credit cards, car loans, student loans, and even child support.




ADDITIONAL RESOURCES





- START SAVING -

It's important to start saving early – not only for your down payment, but also for closing costs which can run between 2-5% of your loan amount.


DOWN PAYMENT

Lenders ideally want a down payment of at least 20% of the home’s sale price. However, its possible to go as low as 3% with some mortgage programs (and 0% with a VA loan). We'll discuss these more on the next page, but the important point now is to think about how much you must save for this down payment.

Also recognize that loans with less than 20% down will have additional costs like PMI. These mortgages can take longer to close and have a higher chance of not closing, so some sellers may be reluctant to sell to a buyer with a low down payment.

PMI costs can average $30-70 per month for every $100,000 borrowed.




CLOSING COSTS

One of the biggest mistakes homebuyers make is not budgeting for closing costs. These are extra costs like fees and taxes, inspections, appraisals, and surveys, and can average around 2%-5% of the purchase price.

YELLOW provides an estimate of these costs for every listing. Click on the 'Cash to Close' link in the listing page to get an estimate of the closing costs.




ADDITIONAL RESOURCES





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