Forget the online mortgage calculator and all that fancy stuff. Forget what your realtor and mortgage company told you. Here is how you find out just how much you can afford!
1. Again, forget what your Mortgage guy told you! Forget what your real estate agent said. They have an agenda. The more home you take on the more money they make. Your real estate agent makes a percentage of the sale price, hence the bigger the price tag the more he/she makes. Your banker gets paid a percentage of the amount you borrow, hence the bigger the amount you finance the more he/she makes.
2. Forget about ARMS, Adustable Rate Mortgages. You don't want to go that route. They change every year. Some years they go down, but more often than not they go up. If they go up, your payment can change by several hundred dollars often making you unable to pay them. This is part of the problem our country is in right now.
3. Forget 30 year fixed mortgages. Thirty years is an eternity to be paying 5-9% interest. The interest on a home that costs $150,000, if you pay 5% (which is low) for 30 years, will be $225,000. This means you paid the orginal $150,000 asking price plus $225,000 in interest, which mean you paid a grad total of $375,000. Now you can see why the lending business is so crooked. There are stupid people out there that don't think clealy. What could you do with $225,000 in your pocket. I would be laughing in the face of this so-called recession.
4. The only way to go is a 15 year fixed rate mortgage. If you can't make the payments on a 15 year fixed then you can't afford to buy a home right now. Save your money until you have enough of a down payment to afford the home on a 15 year fixed mortgage. Using the example above, $150,000 house at 5% for 15 years, you would pay a grand toatal including the purchase price and interest of $262,500. That's a difference of $112,500. That would be nice to have in the bank as well. Do the math, it just doesn't make sense.
5. The basic rule of thumb for a mortagage is simple. If your mortgage payment is more than 25% of your take home pay (not gross) then you can't afford the house. Please use this advice it is FREE! Don't end up like the 282,000 (a stat I say today) who bite off more than they can crew and end up in Foreclosure or even worse bankruptcy court.
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