How to Buy a House home Learn the basics 1. The Basics 2. How much home can you afford? 3. The Down Payment 4. The Loan - Assuming a Loan - Owner Financing 5. Qualifying for a loan 6. Understand Closing Costs Do the groundwork 7. Get your finances in order 8. Clean Up Your Credit Record 9. Establish Credit if you don't have any The Process 10. Find a Lender 11. Evaluate the bank's offer 12. Start looking at houses 13. Get the Disclosure 14. Make an offer / Sign a Contract 15. Have the House Inspected 16. Problems on the Inspection? 17. Renegotiate the terms 18. Appraisal, Survey, & Insurance 19. Appraisal went through? 20. Closing! After the purchase Avoding scams More about Mortgages How much loan can you get? Figuring your monthly pmt. 15- vs. 30-year loans Prepaying your mortgage Understand Compound Interest Private Mortgage Insurance If you won't live long enough to pay off the mortgage Other Topics Renting vs. Buying: Which is better? Paying cash vs. getting a loan The Debt Ratio Tax breaks are actually welfare for the rich Other Links to helpful sites Fan Mail Michael Bluejay's home page Email Me	How to Buy a House	Easy-Qualify loan in Austin 0% down Michael Bluejay (the author of the website) is offering loans to homebuyers in Austin, Texas. Here are the terms: Your credit does not matter, but your ability to pay does. No down payment is required, though you can make a down payment if you like, in order to lower your monthly payments. Your monthly payment will be about 1.15% of the purchase price, including closing costs, taxes, insurance. (e.g., on a $100,000 home, the payments would be about $100,000 x 0.0115 = $1150/mo.). The interest rate is 10%, and I do not require private mortgage insurance. We'll roll most of the closing costs into the mortgage, so they'll be part of your monthly payment, and you won't have to come up with a bunch of closing cost money at the time of the sale. If you already have a high-interest mortgage and would like to refinance at 10% for 30 years, I can do that too. These loans are available for homes in Austin, Texas only. If you're able to get a bank loan you should do so, because the interest rate will be lower. My program is intended for people who cannot get a loan from a bank. Note that you're not married to the higher interest rate forever. If you start fixing your credit with my credit repair instructions, you should have good enough credit to move your loan to a bank in two years -- and get a lower interest rate. Contact me at (512) 322-0638 or use the form below. This box is for inquiring about the above mortgage offer ONLY! If you send anything else (especially requests for help/advice) it will be deleted on sight. For those inquiring about the mortgage offer, don't forget to include your phone number or email address so I can contact you!)
	How much home you can afford? « Back: The Basics « » Next: Down payments » As you know from the basics page you just read, to buy a home you need both up-front money as well as the ability to make monthly mortgage payments. You therefore might be tempted to ask, "How much will I need in order to make the monthly payments?" But actually we'll approach this question from the other direction: We'll find out the most expensive house you can buy given your income and savings. This is called how much home you can afford. You won't necessarily buy the most expensive home you can afford, but you still want to know what your upper limit is. You don't want to waste your time looking at homes you can't afford, and you also don't want to pass up homes you thought you couldn't afford but which might actually be within your reach. Here's the super-quick rule of thumb:  Most people can afford a home that costs up to three times their annual household income, if they can make a 20% down payment and have only a moderate amount of other debt. If you have little to no debt and can put 20% down you can probably buy a house worth up to four times your annual income.1 Examples: If you make $57,200 a year (which was the median household income for first-time homebuyers in 2006) and have money for a down payment saved, you can probably buy a $171,600 home if you have moderate debt (debt payments of <12% of your income), and a $229,000 home if you have little or no debt. But of course, this is just a quick rule of thumb and you'll want to get a more accurate figure. The rest of this page will help you with that. Also, if you're income is small but you're sure you can make the mortgage payments and you have excellent credits there may be other options for you, which we'll get to later. The first concept for figuring how much home you can afford is pretty simple. Since you pay for your house with a combination of a down payment and a bank loan, the total of both is the cost of the home: Down Payment  +  Biggest Loan You Can Get  =  How Much Home You Can Afford The down payment part of the equation is easy to figure -- this is the total of your savings that you're willing to put into your house. (We'll cover down payments in more detail on the next page.) We assume you have money for a down payment because if you don't then you probably can't afford any home, since it's hard to get a loan with 0% down. You usually need a bare minimum of 3% of the purchase price down, more typically 10% or more. The amount you can get from a lender is a little trickier since it's based on many factors. Here's a calculator that will help you with that. Fill in Your Details $ Monthly Income (before taxes) $ Monthly Debt Payments (Min. pmts. on credit cards, auto loans, student loans) $ Money available for Down Payment Fill in the Financing Details  % Mortgage Interest Rate Avg. rate was 5.4% in July 2004. Get current rates from Yahoo. 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% Annual property taxes & insurance (% of home price) Check with your county tax office and an inurance company to get your local figure See how much home you can afford -- rough estimate 15-yr. 30-yr. $ $ Most expensive home you can afford $ $ Maximum Loan $ (%) $ (%) Down Payment $ $ Total Monthly Payment $ $ Monthly Principal & Interest Payment $ $ Monthly Taxes & Insurance Formulas from Wizard of Odds, DollarBank and the Motley Fool, with clarification from Financial Planning Toolkit.   Here's what's important about the values in the table above Putting 20% or more down opens lots of doors. When you can make a down payment this big you're almost certain to qualify for some kind of loan. The bank will be willing to loan more money than otherwise, and you won't have to pay for private mortgage insurance (PMI), which in turn helps you afford even more home. Debt holds you back. The more debt you already have the less home you can buy. Decreasing your debt allows you to afford a more expensive home, everything else being equal. There's more on this on our pages about the Debt Ratio and How much loan can you get? Buying a duplex or a house with a garage apartment increases your buying power. When you get a home with a unit you can rent out, you can count the rent you'll receive as income. This can allow you to buy a substantially more expensive home than otherwise -- which will be a much better investment. Your net monthly payments could actually wind up being cheaper, too, once you subtract the rent you'll receive. 30-year loans vs. 15-year loans. The advantages of a 30-year loan are that the monthly payments are lower, and with a 30-year mortgage you can qualify for a much larger loan and buy a much larger (or nicer) house. The downside is that you have to make payments for an extra 15 years vs. a 15-year loan, and you'll pay a lot more total interest over the life of the loan.Still, in most cases you'll go with a 30-year loan. We'll cover the differences between these later, but if you can't wait then read about 15 vs. 30-year loans. We've left out one important thing -- closing costs. You'll need to either pay the closing costs from your savings (lowering the amount you have available for a down payment), or qualify for a loan that's a little larger than the house you want to buy, and have the closing costs added to the loan (which is called "rolling the closing costs" into the mortgage). How much do homes cost? Now that you have an idea of how much home you can afford, how do you find out whether that's enough? That is, are there homes to be had for the amount you can afford? We'll cover that later (in the start looking section), but here are two quick pieces of advice. First, don't get sticker shock by looking at the pictures ads of homes for sale in the newspaper, or in those real estate magazines, because it's the more expensive homes that get advertised. Cheaper houses definitely exist, it's just not cost-effective for realtors to buy big ads for cheap houses. Second, you can get an idea of the cost of homes in a given neighborhood at Zillow.com. Ignore the national median figure of $225,000 in 2006. Homes could be way less or way more than that depending on where you live and the size & condition of the home you want to buy. Figuring your monthly payment Figuring the max you can afford is all fine and good, but once you have a specific home in mind you'll want to know what your payments will be on that home. We have a separate page on figuring your monthly payment in more detail, but here's a quick table to give you a rough idea. A general rule of thumb is that your monthly payment will be between 0.75% to 1.15% of the purchase price. Estimated Monthly Payment based on Home Price for 5/10/20% down on a 30-year loan • includes est. taxes & insurance see the calculator to figure your situation $100,000 $150,000 $200,000 $250,000 $275,000 $300,000 6.00% 800 / 745 / 646 1199 / 1118 / 969 1600 / 1490 / 1292 1999 / 1863 / 1616 2199 / 2050 / 1777 2400 / 2236 / 1938 6.33% 820 / 765 / 663 1230 / 1147 / 995 1640 / 1530 / 1326 2050 / 1912 / 1659 2255 / 2103 / 1824 2460 / 2294 / 1990 6.67% 841 / 785 / 681 1262 / 1177 / 1022 1682 / 1570 / 1362 2103 / 1962 / 1703 2313 / 2158 / 1874 2524 / 2354 / 2044 7.00% 862 / 805 / 699 1293 / 1207 / 1048 1724 / 1610 / 1398 2155 / 2011 / 1747 2371 / 2213 / 1922 2586 / 2414 / 2096 7.33% 883 / 825 / 717 1325 / 1237 / 1075 1766 / 1650 / 1434 2208 / 2062 / 1792 2429 / 2268 / 1971 2650 / 2474 / 2150 7.67% 905 / 845 / 735 1358 / 1268 / 1103 1810 / 1690 / 1470 2263 / 2114 / 1838 2490 / 2325 / 2022 2716 / 2536 / 2206 Next lesson: Learning about Down Payments Now that you have a rough idea of how much home you can afford we'll learn more about down payments on the next page. (If you prefer to get a more details about the numbers in the calculator before moving on, check out our page on How much loan can I get?.) « Back: The Basics « » Next: Down payments »   Related Resources Home Prices: US + Individual Cities, from the National Associaton of Realtors Home Prices: State + Individual Cities Home Prices: Historical Prices (year by year) More Mortgage Calculatiors: Here are more calculators which show you how much you can borrow: E-Loan, Yahoo, and Octopic. Historical Mortgage rates: Mortgage-X   References 1. Quick rule of thumb for estimating how much home you can afford: Nolo « Back: The Basics « » Next: Down payments »