You also need to pay homeowners insurance, property taxes, and other associated costs. This will help you get a more accurate number and figure out how much house you can really afford with an FHA loan.
Down payment. This is the dollar amount you put toward your home purchase. FHA requires a minimum down payment of 3. This can come from a down payment gift or an eligible down payment assistance program.
Loan term. This is the fixed amount of time you have to pay off your mortgage loan. Most home buyers choose a year, fixed rate mortgage, which has equal payments over the life of the loan.
FHA offers adjustable-rate mortgages, too, though these are far less popular because the mortgage rate and payment can increase during the loan term. Interest rate. This is the annual rate your mortgage lender charges as a cost of borrowing. Mortgage interest rates are expressed as a percentage of the loan amount.
Principal and interest. This is the amount that goes toward paying off your loan balance plus interest due to your lender each month. This remains constant for the life of a fixed-rate loan. FHA mortgage insurance. This can be rolled into your loan balance.
It also charges an annual mortgage insurance premium, usually equal to 0. Annual MIP is paid in monthly installments along with your mortgage payment. Property tax. The county or municipality in which the home is located charges a certain amount per year in taxes. This cost is split into 12 installments and collected each month with your mortgage payment. Your lender collects this fee because the county can seize a home if property taxes are not paid.
The calculator estimates property taxes based on averages from tax-rates. Homeowners insurance. Lenders require you to insure your home from fire and other damages. This fee is collected with your mortgage payment, and the lender sends the payment to your insurance company each year. However, in some cases buyers with higher credit scores or other compensating factors might be able to secure an FHA loan with a higher DTI.
Income also impacts your ability to qualify for certain special assistance programs — for example, if you earn more than area income limits, you may be unable to combine a FHA loan with down payment or closing cost assistance. He says that income limits matter more with down payment assistance programs. Navigating these programs can get complicated, however, because they all have different eligibility rules, and they are often based on household size.
One of the biggest reasons buyers choose FHA loans is because you can put down as little as 3. Low down payment requirements make it easier to afford a home sooner.
The downside is that if you put down just 3. Mortgage insurance protects the lender in case you stop making payments on your loan. With mortgage insurance on FHA loans, you pay an upfront premium at the closing in addition to the monthly premiums. The upfront premium is 1. Another downside to a lower down payment with an FHA loan is that it makes your offer less attractive to sellers.
Chaney says that it can be harder to get an offer accepted with just 3. When buyers can offer a higher down payment, sellers feel more confident that they have a savings cushion available — just in case.
When selecting your loan term, think about how it will impact your monthly mortgage payment. The interest rate you qualify for will depend on your credit score and other financial variables, such as your DTI. There are grants and loans including forgivable second mortgages available that can double or match your down payment. If you qualify, you could combine these programs with your funds to have a large enough down payment to avoid lifetime FHA mortgage insurance. To take advantage of their programs, you have to work with a participating lender.
Are you relying on two incomes to pay the bills? Is your job stable? Can you easily find another position that pays the same, or better, wages if you lose your current job? If meeting your monthly budget depends on every dime you earn, even a small reduction can be a disaster.
The calculation of your back-end ratio will include most of your current debt expenses, but you should consider future costs like college for your kids if you have them or your hobbies when you retire.
Are you willing to change your lifestyle to get the house you want? No two people have the same personality, regardless of their income. The prospect of refinancing the house to afford payments on a new car would drive some people crazy while not worrying others at all. Smart shoppers would do well to keep the following items in mind:.
If you own a home, expect to pay property taxes, and understanding how much you will owe is an important part of a homebuyer's budget. The city, township, or county establishes your property tax based on your home and lot size and other criteria, including local real estate conditions and the market.
According to the Tax Foundation, the effective average rate nationwide for property taxes is 1. This amount varies by state, and some states boast lower property taxes than others. For example, New York's is an average of 1. You will always have to account for paying property tax , even when your mortgage is paid off in full. Every homeowner needs home insurance to protect their property and possessions against natural and human-made disasters, like tornados or theft. If you are purchasing a home, you will need to price out the appropriate insurance for your situation.
Most mortgage companies won't let you purchase a home without home insurance that covers the purchase price of their home. In fact, you may need to show proof of home insurance to be approved by your mortgage lender. In , the most recent statistics available as of early , the average premium for the most common type of home insurance in the U. Heat, insurance, electricity, water, sewage, trash removal, cable television, and telephone services cost money. These expenses are not included in the front-end ratio, nor are they calculated in the back-end ratio.
Nevertheless, they are unavoidable for most homeowners. Many condominiums and coops and specific gated neighborhoods or planned communities assess monthly or yearly association fees. Some communities include lawn maintenance, snow removal, a community pool, and other services. Some fees are only used for the administration costs of running the community.
Before you buy a new house, take a good look at the number of rooms that will need to be furnished and the number of windows that will require covering. The cost of a home is the single largest personal expense most people will ever face. Before taking on such an enormous debt, take the time to do the math.
After you run the numbers, consider your situation and think about your lifestyle—not just now but into the next decade or two. Before you purchase your new home, consider not only what it costs you to buy it but how your future mortgage payments will impact your life and budget. Then, get loan estimates for the type of home you hope to buy from several different lenders to get real-world information on the kinds of deals you can get.
AmWest Funding Corp. Consumer Financial Protection Bureau. Department of Housing and Urban Development. Federal Trade Commission. Quicken Loans. Freddie Mac. The Tax Foundation.
Purchasing A Home.
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