Fort Sill Federal Credit Union Home Buying Guide
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The true cost of homeownership goes far beyond a house's asking price. Be prepared to fork over thousands of additional dollars in interest, closing costs, repairs, renovations, maintenance, insurance, utilities and more. Not to mention, it will of course cost money to furnish your home as well. (People aren't lying when they say buying a home is likely the biggest purchase you'll ever make!) Obviously, you'll want to ensure you can afford homeownership before you close on a mortgage. Here are some general rules to keep in mind: • To keep your purchase aff ordable, make sure your total monthly housing payment (including your mortgage, homeowner's insurance, property taxes, etc.) doesn't exceed 28% of your gross monthly income. (FYI: Gross monthly income is the amount you make before taxes are taken out.) If your annual household income is $90,000, for instance, divide that number by 12 to determine your gross monthly income. In this example, the gross monthly income is $7,500. Now, multiply that number by 0.28 to determine your maximum monthly housing payment, which equals $2,100 in this scenario. THE LOW- DOWN ON DOWN PAY MENT S One of the most important financial decisions you'll have to make early on in the home-buying process is determining how much of a down payment you can aff ord. Some lenders off er low or no down payment options, but putting down 20% of the home's purchase price is ideal. If you put down less than 20%, you will need to pay PMI (Private Mortgage Insurance). Mortgage Guidelines "CENTS" • Now that you know the maximum amount you should spend on your monthly housing payment, it's time to factor your total debt into the equation. Experts recommend that your total monthly debt payments (including your mortgage and any other debts such as an auto loan or student loan) should not go beyond 36% of your gross monthly income. So don't assume that if your annual household income is $90,000, you can automatically aff ord a total monthly housing payment of $2,100. Here's an example to illustrate this point: Based on the 36% rule (and assuming a $90,000 annual household income), the total amount of debt you should pay per month should max out at $2,700. If you pay $700 each month in other debts, then your total housing payment should not exceed $2,000 (to ensure you don't go above your $2,700 maximum). Note that this is $100 less than the amount you might allow yourself to pay if you fail to take this second rule into account. Here's how to do the calculation for your own situation: Simply divide your annual household income by 12 and multiply that number by 0.36. Then, subtract from that number all your other monthly debt payments. The number you're le with is your maximum total housing payment per month. 28% HOUSING DEBT 28% OF PRE-TAX INCOME TOTAL DEBT 36% OF PRE-TAX INCOME 36%