Understanding the true cost of buying a home. ITT Employees Federal Credit Union
Youve made the decision to purchase a house. Its always an exciting and stressful time. The best way to reduce that stress is to learn as much as you can about the process.
Many lenders use the classic 28/36 guideline to make this determination. What does this mean?
28 = Your monthly house payment (including mortgage principal and interest, property taxes, and home insurance) should amount to no more than 28% of your monthly gross income.
36 = total monthly debt obligations (mortgage, car payments, credit cards, and college loans) should not exceed 36% of your monthly gross income.
Like many rules, there are exceptions to these guidelines. There are many programs available that allow you to borrow more, especially for low-income borrowers.
Some times a mortgage company will give you a higher amount than you feel you can afford. You have to decide how much you are comfortable with.
You may or may not need a down payment on your home. Some loans require 5% down, others 3% and still others dont require any down payment. Still others will allow the seller to pay the down payment.
If you buy a house with less than a 20% down payment, your lender may require you to purchase PMI (Private Mortgage Insurance), which will increase your monthly payment.
Fixed Rate Mortgage Payment only changes due to a change in taxes or insurance. ARM (Adjustable Rate Mortgage) Payment and rate starts lower than a fixed rate mortgage for a specific number of years. Then the rate adjusts and remains adjustable for the life of the loan.
Dont sink every dollar into a down payment!!! Youll have other expenses come up such as movers, furniture, repairs, etc. In addition, you should leave a little in savings just in case of an emergency.
If someone gives you money for your down payment, have them give you a letter stating that the money is a gift. This way it isnt figured into your debt obligations.
Closing costs vary depending on the type of loan that you are getting. Closing costs can range from 3% to 6% of the mortgage.
When Buying a home, you can ask the seller to pay your closing costs, and there are special loans that do not require you to pay closing costs. When you apply for a loan, make sure to let your lender know if you can or can not afford to pay closing costs out of pocket.
You will have to pay a one year home owners insurance policy and take it with you to closing. Be prepared for this expense up front.
Be prepared for other expenses that will come up such as: Routine Maintenance Utility Hookup Lawn Care Association Dues
The following tables are based on a $150,000 mortgage on a fixed rate loan with a down payment of $30,000 and does not include taxes or insurance. Figures are an approximate
Give us a call at (260) 451-6161 or (260) 451-5095 or you can contact our lending partner USA Financial at (800) 591-0123 ext. 102 and ask for Matt. Just let him know you are a member of ITT Employees Federal Credit Union and he will be happy to assist you.