Can You Afford A House?
By Brian Daniel, Thu Dec 8th

The time has come to buy a house. Questions buzz around in yourhead like a swarm of angry bees: "How much can I borrow? Howmuch do I have to put down? How much will my payments be?" Well,let me suggest starting with the "How much can I borrow?"question. I know you should never answer a question with aquestion, but in this case we need to ask a few more questionsin order to figure out the answer to our first question, and forthose of you who would like to start crunching numbers rightaway, try out these helpful mortgage calculators.

There are many factors you need to take into consideration whenpurchasing a home. First and foremost, ask yourself what sizemonthly payment you can afford. When determining how large amortgage you can afford, take into consideration all yourcurrent expenses such as car payments, credit card bills,student loans, utilities, and the like. You may also want tofactor in how much you spend on things like entertainment,eating out, and traveling.

When deciding on a comfortable monthly payment, consider makinga down payment in order to decrease your mortgage payment. Adown payment can be cash on hand. You can also use a cash giftfrom relatives or equity from the sale of a previous home. Thereare many other down payment options out there--your pension ordeferred compensation plan, for example--but I can't go into allof them. I'll save that for another article.

At the present time, most lenders will allow for a whoppingdebt-to-income ratio of 45% - 50%. Your debt-to-income ratio isthe sum of your mortgage payment and any other credit card orloan payments, divided by your monthly gross income. Lenders usethis ratio to help determine your credit worthiness. So, all ofyour revolving debts along with your mortgage payment divided byyour monthly gross income should not exceed the 36% - 45%debt-to-income ratio. So, here's a quick little formula to helpyou figure out how much you can afford to put toward you monthlyhouse payment:

--Multiply your gross monthly income by 0.45

--Subtract your non-mortgage debt payments from the result

--What's left is your allowable mortgage payment

So, if we have a couple with a combined monthly gross income of$5000 and they pay $700 a month toward two auto loans and onecredit card, they would qualify for a monthly payment of $1550.Also, be aware

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that not all of your monthly housing payment goestoward your principal and interest. A portion must go towardhomeowner's insurance and property taxes. I mention this becauseon most mortgage calculators that'll you use, you'll need toenter these figures to get an accurate idea of what your realmonthly mortgage payment will look like.

Property taxes are typically a percentage of your home'sassessed value. To calculate property taxes, local jurisdictionsgenerally multiply the tax rate by a home's assessed value. Forexample, if you pay 0.5% in property taxes of the assessedvalue, a home assessed at $250,000 would have a yearly propertytax bill of $1,250. In order to find out the tax rate, you willneed to contact your county tax assessor or a local mortgagebroker or bank will be more than happy to help. As for thehomeowner's insurance, your best bet is talking to a localbroker or bank to get a general idea of what it is for yourarea. Mortgage calculators will ask you for a percentage ratesometimes and others will ask for a yearly figure. It can beconfusing.

Figuring out how much you can afford to put toward your monthlyhouse payment is a start. Now, you want to know how much houseyou can afford. There are mortgage calculators galore that willhelp you do this, but, as I mentioned above, they will requireyou to enter real estate taxes, homeowner's insurance, andinterest rates. Some calculators will provide you with figures,but they aren't necessarily correct, so I would suggest a littleleg work. Once you know how much you can comfortably spend amonth toward a home, and you've gathered your tax and insurancerates, you only need an idea of what kind of interest rateyou'll get. Oh, did I forget to mention that you can call alender or mortgage broker to get pre-qualified as well, and theyusually don't charge anything? If you're curious, try out somemortgage calculators. Once you have a good idea of what you thinkyou can afford, call a local lender or broker and getpre-qualified to see if you're in the ballpark, and soon you'llbe on your way to owning a home.

About the author:Brian Daniel is a loan officer/marketing coordinator for Bend Mortgage GroupLtd. a mortgagecompany in Bend, Oregon. For more information or help with aBend, Oregon homeloan visit www.bendmortgagegroup.com.