Question: Well, being a first time home buyer and most nice Townhomes in my area start around 400,000, and I have a household income of about 90-95,000, both people w/ car payments. I have good credit, my girlfriend has excellent credit. Right now we piss away about $1300/month in rent. We have no problems paying that amount. I imagine we could probably afford up to 17-1800/month if we had to. Given those parameters, what type of money do I need up front, and do I have any chance whatsoever at being able to finance $400,000-450,000?
Answer: As a rough rule of thumb optimum mortgage rates are granted when the borrower has good credit and they are borrowing 80% or less of the appraised value of the house.
Right now rates are approaching 7% but a good trick to calculate (approximately) mortgage payments is to take the interest rate (ie. 7%), multiply by 100, and that’s the payment per $100,000.00 — so for example, 7% would be $700 per $100,000.00.
Using this system, 80% of $400,000.00 = $320,000.00 – therefore you are looking at financing $320,000.00. If interest rates are 7% then your payments would be around $2,240 plus property taxes and homeowner’s insurance.
$1,800.00/month would be enough to pay for a $257,000.00 mortgage – but don’t forget that you still must pay real estate taxes and insurance.
You can get lower payments with variable rate or interest only loans but using those options depend on your circumstances. Also when you budget for closing you need to budget for closing costs which include lender fees, title insurance and attorney fees. Depending on where you are buying these costs shift
Also 100% financing is possible these days — so is 125% financing but you really need to figure out what you can afford and how long you want to own the house.
One mortgage broker added some specifics: At 400k with 5% down you are looking at a P&I of around 2300 at a 6.375% 30 year fixed rate mortgage.