First, The Down Payment

Category: Finance, Mortgages.

The bad news about the housing market slump is well known. Just a couple of years ago when the housing market was booming, the hot question was, "When will the housing bubble burst? " Well, the housing market bubble has burst and though it is not nearly as bad as some people would lead you to believe, it is nonetheless a slump.

In fact, this is undoubtedly the most widely forecasted housing slump in the history of the world. The good news is, as housing sales have fallen, interest rates have fallen, as well. At that time, he barely qualified for enough mortgage dollars to buy it. Recently, I spoke to someone who had purchased a home last year. In the course of our conversation he sounded very confident when he asked me, "If interest rates are falling, doesn t that mean I could afford a lot more house now? " It is true when interest rates fall, mortgage payments become lower and so more expensive houses become more affordable. Actually, there are four things you have to be concerned with when you are figuring how much house you will be able to afford.

However, there is more to qualifying for a mortgage than that. First, the down payment. So if a person has$ 40, 000 available to put down, he would only be able to look for houses priced up to$ 200, 000 because$ 40, 000 is 20% of$ 200, there are non, 00 Of course- standard loans where you may qualify with 10% or even 5% down, but then you have other considerations such as payments to a private mortgage insurer and higher interest rates. For a standard mortgage, a lender will require 20% down. This problem doesn t exist when a buyer has$ 100, 000 available for a down payment because$ 100, 000 is 20% of$ 500, this buyer wouldn, 00So probably t be limited by the down payment. Many lenders have eased the limits on borrowing due to income considerations.

Second, the buyer s income. No- Income verification is one very popular type of mortgage today. An ancient lending practice is to loan mortgage money to a homebuyer in an amount where the monthly payment doesn t cause the buyer s monthly obligation to exceed 36% of his income. Still, though qualifying is the order of the day, it would be nice to know a foreclosure is not inevitable. So, in a case where the buyer has no credit card debt or car payments and other debts, and he earns$ 6, 000 a month, he qualifies to make a monthly payment of 36% of$ 6, 000, or$ 2, 16Of course, many people are not as debt free as this which brings us to. If a buyer has determined he qualifies to make a payment of$ 2, 160 a month and he has credit card debt of$ 300 a month and a car payment of$ 250 a month he will be left having been deemed able to make a monthly mortgage payment of$ 2, 160- $300- $250, or$ 1, 61 Finally, the interest rate. Third, other monthly obligations.

At 7% , a monthly payment of$ 1, 610 on a 30- year mortgage would qualify a buyer to borrow$ 242, 00This would be 80% of the price of the house he could purchase. The total price of the house with this scenario could be up to$ 375, 000 after the 20% down payment of$ 75, 000 is applied. So, he could buy a house for$ 302, assuming he has, 500 the necessary 20% down payment of$ 60, 50 At 6% , the mortgage could be up to$ 268, 000 and at 5% ; it could be a very healthy$ 300, 000! Of course, if the buyer has more money to use as a down payment, he could afford that much more. When he closed last year, interest rates were 7% . So, you can see the gentleman who believes he could afford more house this year than he was able to buy last year has a very good point! In fact, if he has been a good boy and has made all his payments on time, he should consider a refinance.

Just let me leave you with two parting pieces of advice. Basically, there you have a way to generally assess how expensive a house you can purchase at a given time. First, only apply for a fixed rate mortgage. Second, don t play the interest rate market. This way the payment will never go up. In other words, if you are ready to purchase a home now, do it. Interest rates are low today, you can t be sure they will be tomorrow.

Waiting until you think the market is as low as it can get, may back fire.

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But The Way To Escape Financial Straits Could Be As Easy As Refinancing Your Mortgage - Finance and Mortgages:

Life has a way of piling it on: student loans, your kids, credit card debt school fees, etc, monthly utility bills.