Finding the Perfect Home at the Perfect Price: How Much Home Can You Afford?
Now that you've decided that it's time to buy a new home where do you start? A great place to begin is to sit down and determine how much home you can afford and what it takes to purchase a home. Buying a new is home is an easy and exciting process and once you know your perfect price!What Does a New Home Cost?
One question that seldom gets asked before we start shopping is "What does a new home cost"? The first thing to do is clear up the confusion that exists between the price of a home and the cost of a home! The price of new homes in most cities generally ranges from the low $100,000's to several million dollars. But since very few people buy houses for cash, you'll most likely be getting a loan (mortgage) for your home and paying a monthly payment, so the price of a home and the monthly cost of a home are two very different things. Most of us will concentrate on how well a monthly payment fits into our family budget. Depending on your loan's interest rate, new home monthly payments range between .75% to somewhere around 1.15% of the purchase price of the home. So, on a $200,000 home your monthly payment could range from $1,500 to $2,300 every month. You'll also have to add insurance and local taxes to this number to get the final payment. One way to dramatically reduce your down payment is to put more money down on your home. The bigger the down payment, the lower your monthly payments will be.
There is some upfront money you'll need to collect to purchase your new home. The down payment is the amount of money you'll need to provide at the onset of the transaction. A down payment demonstrates your ability to obtain funds to start the transaction and insures the lending institution that there is some collateral they can retain in the event that that you default on the loan. A down payment will be between 3% and 20% of the purchase price of your home.Putting as much "down" on a new home has a dramatic effect on your monthly home payment because it reduces the amount of the loan and will most likely get you a lower interest rate. These two factors along could save you hundreds of dollars each month. You'll also need to have to pay closing costs. These costs include attorney's fees, brokerage commissions, title service cost, recording feeds, survey fees, mortgage, appraisal and inspection fees and some taxes and home owner's association dues if applicable. These costs will total between 1% and 8% of the total price of the home, though they generally total between 2-3%.
There are some quick "rules of thumb" which can get you in the ballpark, but should not replace a detailed meeting with your financial analyst. Most people can afford a home priced at three times their annual household income. If you have little or no debt, and can put 20% down on your home, you may be able to afford a home valued at 4X your annual income. Finally, you'll need to show the bank that you've got a solid employment history.
With the increasing price of rental property today, getting a house at the above prices is a great deal, but new home builders are consistently sweetening new home deals with steep discounts and very aggressive incentives. If you can find a home that has a builder discount or special included, you'll do even better. Builders are also often willing to assist with your closing costs, and may have their own mortgage companies that will help you through the process. It's always a good thing to start working with a mortgage company as soon as possible on your purchase so they can exhaust all avenues to make sure you get the best deal on your new home.
Finding the perfect home starts with finding the perfect payment!