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Affordability calculator
Now that you have decided
that you want to purchase a home, the next step to achieving your dream of home
ownership is locating the home that you want to buy. Although everybody has fantasies of magnificent luxury homes like
the ones that celebrities and presidents of Fortune 500 companies live in, the
unfortunate truth is that everybody has to live within their own means. Usually prospective homebuyers have a
specific price range that they narrow their housing search to. This helps filter out homes whose prices are
either too unrealistic for the homebuyer to actually afford and homes whose
prices are low because they do not meet the criteria of what the homebuyer is
looking for in a home. The last thing
that a prospective homebuyer wants is to fill their days off with looking at
homes that they either can’t afford or would never want to buy in the first
place.
By creating a specific price range for buying a home, the prospective homebuyer
has significantly reduced the time and effort required to locate a home that
they would want to buy. Through this
filtering process, the homebuyer will be able to focus on other aspects of what
they want in a home that does not relate to the sale price. The specific housing pricing range of a
homebuyer will obviously vary for each prospective homebuyer. However, there are a number of factors that
will be used to determine the specific price range. These variables include:
Annual income: which is used to determine how much expenditure that the
homebuyer can afford to commit to mortgage payments. Also, annual income will help determine
the type of home loan that the prospective homebuyer will realistically
obtain.
Additional income: if the prospective homebuyer obtains income
from an additional source outside of their regular job, such as through
stocks, this extra income will be factored in to determine the level of
mortgage payments that the prospective homebuyer can afford.
Job status: the stability of a prospective homebuyer’s job and whether or not
there is a prospect of advancement will help determine the flexibility of
the prospective homebuyer when they shop for a mortgage loan.
Monthly payments: the extent of expenditures that the
prospective homebuyer is responsible for will be subtracted from the
prospective homebuyer’s monthly gross income in establishing their monthly
income. The monthly income level
is important to determine when establishing a range of how much mortgage
expenditure that the prospective homebuyer can afford to pay. Examples of monthly payments include:
car payments, student loans, personal loans, and insurance.
Expected down payment: the down payment amount is the portion of the
home sale price that the homebuyer is responsible for that does not
incorporate any of the finances obtained through a housing loan. The amount of down payment that the
prospective homebuyer can realistically afford will be a major factor in
determining the type of loan package and the terms of the loan that the
homebuyer will be able to obtain.
Additional property expenses: a thorough analysis of local real estate
market conditions will help the prospective homebuyer factor in additional
property expenses into determining what pricing range is considered
affordable for the homebuyer.
Expenses such as home insurance rates and property tax rates should
be factored in, as they are unavoidable.
By determining the pricing
range for homes for sale that the prospective homebuyer can realistically
afford, the homebuyer will be able to continue their housing search with
additional confidence. Although the
best method in obtaining the house pricing range that a prospective homebuyer
should look in is through a discussion with a professional financial consult,
there are times when an informal estimate of the pricing range that a homebuyer
should narrow their housing search is needed.
One particular time is when the homebuyer embarks on their quests to
find a home that they want to purchase.
In these situations, there is one instrument that will help the prospective
homebuyer find the pricing range in which they can afford to buy a home. This instrument is the affordability
calculator. An affordability calculator
will be able to determine the most expensive home that a prospective homebuyer
can purchase and will also establish the maximum mortgage amount that the
homebuyer can responsibly afford.
Although there are a variety of affordability calculators that are
available that have some minor differences, there are some core elements to an
affordability calculator that helps it achieve its goal.
Maximum down payment amount
Interest rate on mortgage plan
Length of time on mortgage loan plan
Annual income
Monthly payments
Property tax rate
Home insurance rate
Lender’s qualifications ratio, which encompasses
a front-end ratio to back-end ratio that is used to determine whether or
not a prospective homebuyer will qualify for a specific loan program.
From these variables, the
Affordability Calculator is to produce these outcomes:
The maximum price for a home that the homebuyer
can afford.
The maximum mortgage amount that the homebuyer
can obtain.
An estimated monthly mortgage payment amount.
An estimated monthly private mortgage insurance
payment amount.
An estimated monthly property tax amount.
Through the use of an
affordability calculator, the prospective homebuyer will be more prepared in
planning for the future financial obligations tied to buying a home. Not only will the figures produced by an
affordability calculator narrow the homebuyer’s housing search to a manageable
level but it will also be used to help prepare the homebuyer in their attempt
to obtain the financing necessary to purchase a home.
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