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How Much Mortgage Can I Afford?
Calculating how much you can afford on a home mortgage is a lot more complex than calculating how much you can afford in rent. In the latter case, a third of your income is usually a good measure for the most you want to pay in rent. Where a mortgage is concerned, you have to take some other considerations into account when you’re shopping around for houses.
Property Taxes
The amount you pay to finance the cost of the house is only the first part of determining how much the mortgage will actually cost you. You’ll also have to take into account the cost of property taxes in the area where you’re buying. Because this is an unavoidable expense, you have to factor it in from the start. If you don’t, you’ll almost certainly underestimate the costs you’ll pay each month.
Take the yearly taxes on the property and add a 12th of that sum to your monthly payments as most people pay this monthly via their escrow account. That way you avoid paying a large sum at one time each year to satisfy your property tax bill.
Homeowners, Flood & Mortgage Insurance
Homeowner’s insurance will be a necessity, as well. You’ll have to factor this into the cost of your home every month. Remember not to go by an average in this case. The homeowner’s insurance could be much more expensive if you live in an area that’s prone to flooding or to fires. This could vary by the neighborhood, so be sure that you’re making a good estimate of what you’ll have to pay.
Unless you show up with a very large down payment, you’ll also need mortgage insurance. This protects the lender from taking all of the risk if you should happen to default on the loan. You’ll have to factor this into the total cost of the mortgage, as well. Make sure your mortgage loan officer can explain this to you and make sure you understand the amount you’ll have to pay.
Debt to Income Ratios
Generally speaking, your mortgage should cost you somewhere between 28 and 33% of your gross monthly income. This cost has to include all the aforementioned expenses, as well as any others that may exist, such as neighborhood association fees and so forth.
The mortgage loan officers at NOLA Lending will be able to help you find a suitable loan that fits your income. One of the things that caused the housing crises was people buying way more than they could realistically afford. If you make smart decisions and buy within your means, a mortgage can be an affordable form of financing that offers you a lot of joy for the amount you pay every month.
Please contact us to assist you in calculating your estimated monthly payments!
Can you Sell Your House and Retain a Prior Mortgage?
There are some situations where you may be able to sell off your property and still retain the mortgage. There are also situations where you may end up with more than one mortgage at a time. Obviously, this latter situation is one that you won’t want to endure for long, unless you’re a property investor.
Situation #1: Moving to a New Home
Right now, one of the most common—and frightening—phrases that people hear is “underwater mortgage”. This is a situation that arises when the balance on your mortgage is higher than the value of the property it’s written for and, of course, that means that the homeowner is in a bad situation. This makes some homeowners wonder if they could take their existing mortgage to a new property.
Generally, you cannot “move” a mortgage loan as your loan is secured by your real estate. However, if you’ve been a good customer, they may offer you a mortgage much like the one you have. In fact, because there were so many bad mortgages being written in the past, you may even qualify for something better than you have right now.
Situation #2: Lease to Own
This is one situation where you may be able to keep your mortgage and sell your home. Under this arrangement, a new tenant moves into the home and takes over the payments on your mortgage. In Louisiana, you may hear this arrangement referred to as a “bond for deed.”
Some people who make these arrangements do them at a profit and make a bit of money off of the tenant’s payments. Sometimes they simply have the tenant make the regular payments, however.
This is sometimes done by property investors as a way to balance having more than one mortgage and to still keep it affordable.
Situation #3: Short Sales
If your mortgage is underwater, you may be able to sell it off in a short sale, which is a sale of the home for less than the value of the sum left on the mortgage. This requires approval from the bank and will depend upon your situation. It will impact your credit, so be careful about taking on such an arrangement.
Most often, a new home will require a new mortgage. You can talk to the mortgage lenders at NOLA Lending to see if we can find you something very similar to what you have, however, or even something a bit better.
