Sixty-one percent of first-time buyers who made a downpayment on their home pulled that money from savings, and 22 percent received a gift from a friend or relative, according to the 2009 National Association of REALTORS® Profile of Home Buyers and Sellers. Six percent received a loan from a relative or friend, 6 percent tapped into a 401(k) fund, and 6 percent sold stocks or bonds.
Wherever buyers get downpayment funds, that money makes a big difference in how much of a mortgage they can afford. Help buyers understand that calculus with these tips from the June “Get Ready to Own” bundle now available at the REALTOR® Content Resource:
1. Factor in the downpayment. How much money do buyers have for a downpayment? The higher their downpayment, the lower their monthly payments will be. If they put down at least 20 percent of the home’s price, they may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for their mortgage payment. The lower their downpayment, the higher the loan amount they’ll need to qualify for and the higher their monthly mortgage payment.
2. Consider overall debt. Lenders generally follow the 28/41 rule. Buyers’ monthly mortgage payments covering their home loan principal, interest, taxes, and insurance shouldn’t total more than 28 percent of their gross annual income. Their overall monthly payments for their mortgage plus all their other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41 percent of their gross annual income.
If their gross annual income is $100,000, multiply by 28 percent and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, they can check the total of all their monthly bills including their potential mortgage and make sure they don’t top 41 percent, or $3,416 in this example.
Those are just two of four tips buyers can use to determine how much mortgage they can afford now available at the REALTOR® Content Resource. If buyers already know their mortgage limits, share tips on steps to take before buying a home, finding the right home, improving your credit, understanding real estate representation, and keeping their home purchase on track, all of which are also part of the “Get Ready to Own” bundle.
The REALTOR® Content Resource, the new tool brought to you by the National Association of REALTORS®, is an exclusive NAR member benefit that entitles you to download free homeownership content in your consumer website, blog, or e-newsletter. HouseLogic is the National Association of REALTORS’® no-topic-left-uncovered consumer Web site geared to helping home owners make smart decisions to maintain, protect, and increase the value of their home.