Tip #2 - Know how much home you can afford before shopping

For most of us, we have no idea how much home we can afford.  We just know what we can afford each month.

I'm going to help you calculate that number.

The first thing you want to ask yourself is, "What is the absolute most I can afford each month on my house payment, while still leaving just enough cushion to take into account any unforeseen surprises that may arise?"

It is important not to stretch yourself too thin and leave no margin for error.  You don't want a blown car tire or a speeding ticket put you in a place where you may not be able to make your payments.

For someone who is trying to get "seasoned" for the banks and create a track record of evidence to increase your odds of getting a loan down the road, the last thing you want on your record is late or missed payments.

Once you've figured out the most you can afford, you need to take into account monthly taxes and insurance that will be included in your payment.

A general rule of thumb, although not completely accurate, would be to figure:
    $150/mo for a house in the $100,000 range
    $200/mo for a house in the $150,000 range
    $250/mo for a house in the $200,000 range

Again, these numbers are not completely accurate and will differ according to the actual property taxes on each property, but it's a good place to start to get a general idea.

So if you can afford $1,200 month, and think you would like to be in a house worth about $150,000, then subtract $200 from your monthly payment and now you know that the amount of your mortgage needs to have a monthly payment of $1,000/mo.

Now we can figure out the size of the mortgage you can afford.

Go to: http://clicks.aweber.com/y/ct/?l=CXMH7&m=1pyGWaVJPlMw6m&b=1O5ehayFowaphpPN1JyULw

This is how it works:  Put in the data on 4 of the 5 fields.  Then click calculate next to the field you want to find.

To figure out how much mortgage you can afford:

     1. Enter 7.99% in the area for your interest rate. (Although rates are currently lower, this is a good conservative number to use, especially if you had some credit issues in the past).

     2. Enter 360 in the "number of payments through life of loan" field to 30 year loan.

     3. Enter 12 in the "payments per year" field to reflect monthly payments.

     4. Enter the monthly payment you calculated after taking out taxes and insurance in the "monthly payment" field.

     5. Press the calculate button at the top next to the "amount of loan" field to find out how much the loan amount is.

You should now have an idea of how much you can finance and be at your payment range.

Remember to also calculate your down payment.  In today's market, getting loans without a downpayment is not an option any more.

You want to anticipate putting at least 10% down to make the chances of getting a loan the greatest.

So take the amount of loan you can afford, multiply it by .10 to figure out 10% of that amount.  That is how much you should have as a downpayment.

So if you can afford a $100,000 house, 10% would be $10,000 for a downpayment.  So you can actually afford a house that is priced at $110,000 as long as you have $10,000 to put down.

So now that you know how much house you can afford, you will be a much wiser shopper when looking for your new home and avoid getting into a situation where you are in over your head when it comes to your housing costs.

If you don't have much of a downpayment saved up now, this would be a good time to start a "downpayment fund" and start saving a little each month.  You'll be surprised how quickly you can build up a sizeable downpayment if you will consistently save each
month.  And hopefully after this exercise, you have an idea of how much you need to save.

I hope this helped.