Eaton Federal Savings Bank Blog

How Much House Can You Afford – Know Before You Buy

 Published - Monday, March 28, 2016

Getting ready to buy a house? Congratulations! It’s an exciting time for you and your family. But it certainly helps to focus on the crucial details first. Have you calculated how much you can afford? If you are depending on a mortgage loan to finance your home purchase, it’s a good idea to get pre-approved first. This will avoid any disappointment when you find the home of your dreams.

It is also important to understand that while a home loan may cover a large part of the purchase price, there are other expenses you will incur, such as the closing costs. This will have to come out of your pocket. Having the full financial picture will make your home-buying process stress free.

In this post, our mortgage loan specialists have highlighted all the typical costs involved in home purchase. This will help you properly calculate how much house you can afford.

  • Down payment: Most mortgage or home loans require you to contribute towards the purchase price. This is called the down payment amount—some government funded loans have minimum down payments ranging from 0.00% to 3.0% (of the purchase price or appraisal, whichever is lower). Other, non-government loan products may require a minimum down payment as low as 3.0%. Mortgage insurance would be required in this case. These would be typical examples of the lowest down payment available when purchasing your home.
  • Income: As a general rule, you may qualify for a home loan based on the following formula of income versus expenses. The monthly housing expenses (principal, interest, real estate taxes, insurances and homeowners fees) should not exceed 30% of your GROSS monthly income. Your total monthly debt (housing expense listed above plus other installment or revolving obligations) should generally not exceed 40% of your GROSS monthly income. Exceptions to the ratios are frequently made for an excellent credit history and ample liquid assets available for a cushion after closing.
  • Closing costs: This is typically 2 to 5% of your home purchase price. In addition to your down payment, you may also also have to pay for some of the following:
    • Property appraisal 
    • Land survey
    • Title insurance
    • Home inspection (generally the buyer’s option)
    • Attorney/lawyer’s fees (for drawing up the necessary paperwork)
    • Buying agent’s fees
    • Loan processing and/or underwriting fees
    • Property taxes
    • Recording fees to the city or county
    • Condo fees, where applicable
    • Homeowners insurance policy paid for the first 12-months
    • Title company closing fee
    • Closing fee
    • Flood determination
    • Underwriting fee

Your Eaton Federal mortgage expert will give you a proper idea of all the fees you will be expected to pay.

  • Moving costs: Also remember to factor in moving expenses. This will depend on how far you live from the new home and how much of your belongings you are moving. If you have friends willing to help, some of the additional expenses will be eliminated although you may have to spring for some pizza and beverages.
  • Anticipated monthly expenses: Many first-time homeowners might not be aware that expenses don’t end once the keys are in your hand. Calculating monthly expenses which include mortgage loan payments, utilities, car payments and other living expenses will help you truly determine the type of home you can afford.

Financing Your Dreams with Home Loans from Eaton Federal

Eaton Federal Savings Bank has been providing mortgage loans to families in the Mid-Michigan area since 1937. The best part about working with our professional home loan team is we make sure you get the right loan, right rate and best service.

Whether you are looking at a fixed rate mortgage loan or considering an adjustable rate mortgage loan, you can rely on us to advise you on what’s best for you. We also offer a variety of low down payment options to help you afford your dream home.

At Eaton Federal, we always recommend prospective homeowners seek pre-approval with their mortgage first. It determines the amount you will qualify for as well as gives you an idea of what your costs will be and what payments you can expect. Our mortgages pre-approval process is fast and completely free to help you get started on your home buying process. We even have the ability to lock an interest rate for you with a conventional financing pre-approval. The lock is good for up to 60-days to allow time to find your dream home. Once you find your special home during the initial 60-day lock period, the rate remains good for 30 additional days to allow time to process and close your transaction. This feature eases the pressure you may feel in a rising rate environment.

Contact an Eaton Federal mortgage loan officer today and get ready to purchase your dream home! Or, if you’re ready to get started right away, visit our Online Loan Center and you can submit your application online.

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