Affording a Home in Boca Raton, FL
Boca Raton Real Estate
There is a rule of thumb that says that if you have the capacity to repay the mortgage, you can afford a single-family house that costs up to two and one-half times your annual gross income. (Annual gross income is the amount you make before taxes are deducted.)
Like other rules of thumb, this one is handy and can give you a general idea of how large a mortgage you can afford.
But, because it is so simple, it doesn't take into account all the information that will help you feel comfortable with your mortgage payments.
If you are buying a house with someone else (spouse, parent, adult child, partner/companion, brother or sister or other relative), you should consider your co-purchaser's earnings and existing debts as well. Remember, if you apply for a loan with somebody else, you and your co-borrower are both legally responsible for repayment of the mortgage.
Your buying power depends on how much you have available for the down payment and how much a financial institution will agree to lend you.
Your down payment
your life insurance policy, and gifts from parents or other relatives may all be suitable sources for a down payment.
The biggest hurdle for most home buyers is saving enough money for the down payment. This can be particularly hard for first-time buyers. Many times it takes years of careful budgeting of their spending for first-time buyers to save enough for the required down payment.
Depending on the money lender and loan type, you may be able to get a mortgage with as little as 3 percent or 5 percent down. However, putting less than 20 percent down often means you will be required to purchase private mortgage insurance. Private mortgage insurance (PMI) helps protect the lending institution in case you fail to make payments on your mortgage.
Typically, these costs will be added to your monthly mortgage payments and to your closing costs. In helping you decide how much money you feel comfortable paying as a down payment, you should think about the many other expenses that go along with buying a home. There will be moving expenses and maybe home decorating costs. You may be about to face other expenses such as buying a new car.
You should try to avoid moving into the home of your dreams with a savings account on empty. In many cases, your money lender will want you to have two months of mortgage payments saved up as a cash reserve when you apply for your mortgage.
Your closing costs
Closing costs generally range from 3 percent to 6 percent of the amount of the mortgage. So, if you were to buy a $100,000 house with a 5 percent ($5,000) down payment, you could expect to pay between $2,850 and $5,700 on your $95,000 mortgage. Sometimes, you can negotiate with the seller of a Boca Raton property to pay some of your closing costs, which will reduce the amount of money you will need to bring to closing.
How much a financial institution will
When you apply for a mortgage, the money lender will consider both your earnings and your existing debts in determining the size of your loan. Lenders generally use the following two qualifying guidelines to determine what size mortgage you are eligible for:
The amount of money you owe for mortgage payments, Boca Raton property taxes, insurance, and condominium or co-op fee, if applicable, should total no more than 28 percent of your monthly gross (before-tax) income. This is called the housing expense ratio.
The amount of money you owe for the above items plus other long-term debts should total no more than 36 percent of your monthly gross income. This is called the total debt-to-income ratio.
Basically, lenders are saying that a household should spend no more than about one-fourth of its income (28 percent) on housing and no more than about one-third of its income (36 percent) on total indebtedness (housing plus other debts). Lenders feel that if they follow these guidelines, homeowners will be able to pay off their mortgages fairly comfortably.
These money lender ratios are flexible guidelines. If you have a consistent record of paying rent that is very close in amount to your proposed monthly mortgage payments or if you make a large down payment, you may be able to use somewhat higher ratios. Some lenders offer special loans for low- and moderate-income home buyers that allow them to use as much as 33 percent of their gross monthly income for housing expenses and 38 percent for total debt.
When you go to apply for a mortgage, the
lender will use all the relevant data -- your income, your existing debts, the
purchase price of the house, your down payment, the interest rate on the loan,
and the cost of Boca Raton property taxes and insurance -- and calculate whether you
qualify to borrow the amount of money you need to buy the house.
Purchasing a home without the services of a licensed Realtor can lead to delays and contractual misrepresentations.
These pages are not intended to replace the services of your realtor.