Advice & Resources
If you're like most Americans, owning a home is a major part of your American dream. Home ownership is a big responsibility, one that you will need to accept for many years to come. Yet, it's worth the effort. Most people rate a home purchase as their largest and best long-term investment.
Our Mortgage Department staff are qualified and ready to assist you with all of your home financing needs. Contact them today at (803) 376-5016 or by email. For more information on the home buying process, visit our Home Buying Coach or visit our Home Resource Center.
Use this Table of Contents to find your answers:
- Home Buying Calculators
- How much can you afford?
- Qualifying Ratios
- Determine Your Mortgage Payment
- Costs & Expenses
- What to Bring when You Apply
- How much can I afford?
- What will my payment be?
- Should I refinance?
- What term should I choose?
- How much of a down payment should I make?
- What is my loan to value ratio?
As a rule of thumb, you can typically afford to buy a home that costs 2 ½ times your annual income. The amount you can borrow and what you can afford to buy will be based upon a number of factors including how much you can pay up front and your qualifying ratios. Use this calculator to determine how much you can afford.
You will have some idea of how much money you can afford as a house payment based upon what you are paying now for rent or your current mortgage payment. While you may be able to get a large loan, make sure the monthly payments fit into your spending plan so you don't become "house-poor." Lenders will qualify you based on your gross (pre-tax) income, but you have to make the mortgage from your net (after-tax) income.
As part of the qualifying process, the lender will use ratio calculations to determine whether you have adequate stable income to support the monthly mortgage payments. These calculations are often referred to as debt-to-income ratios. There are two ratio calculations performed by the lender: the housing debt to income ratio and the total monthly debt to income ratio.
Lenders usually assume you can afford to spend 28% of your total income on your mortgage (principal and interest), property taxes and homeowners insurance. Even if you meet this test, you can still be turned down if your mortgage expenses and other regular debt payments, such as auto and student loans, are more than 36% of your total income.
Use the chart below or the Mortgage Payment Calculator to help determine your monthly mortgage payment. You can play with different scenarios to see what will work best for you and your budget.
Down Payment - The down payment is the part of the purchase price that a buyer pays in cash and is not included in the mortgage. It will be the most significant outlay of your pre-purchase costs. There are programs for homeowners to buy a home with as little as three to five percent down to no money down.
Your down payment is the difference between the purchase price and your loan. For example, if you are buying a $100,000 home and you put $5,000 down, your financing would need to be $95,000. This also initially determines your loan-to-value ratio – the amount of your loan to the purchase price expressed as a percentage. Use this calculator to determine how much your down payment should be.
Earnest Money - Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary). It becomes part of the down payment if the offer is accepted, is returned if the offer is rejected or is forfeited if the buyer pulls out of the deal. Earnest money is also known as the deposit.
Closing Costs - Closing costs are customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing. These costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application. Examples of closing costs include attorney fees, title insurance, appraisals, points and property taxes.
Post-Purchase Reserve Funds - The lender might want to see that you have some reserve money to protect against potential cash flow problems after purchase. Having two to three months worth of housing expenses as reserve can also give you peace of mind.
The Other Costs/Expenses of Ownership - Owning your own home involves many costs you may initially overlook, including:
- Insurance - You will need enough homeowners insurance to cover the mortgage amount. The insurance company may insist that your coverage equal the house's full replacement value. A homeowners' policy combines protection against damages to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.
- Property Taxes - Local school and property taxes vary enormously from place to place. Check before you buy.
- Maintenance Charges - Condominium and co-op charges for monthly expenses can escalate rapidly, so anticipate them in your purchase decision.
- Housing Expenses - Remember that monthly utilities may vary from house to house and place to place. In addition, you will incur expenses for house upkeep like yard maintenance, appliance maintenance and replacement, renovations, furnishings, etc.
When you apply for your mortgage, please bring the following items to ensure the best possible service:
- Income verification – Pay Stub / Tax Return
- Balances and account numbers for all checking, savings and investment accounts
- Amount and details of all debts
- Down Payment Source(s)
- Employment status of each person to be named in the mortgage
- Amount of current mortgage or rent
- Record of all other obligations or income, such as child support
For more information on the home buying process, visit our Home Buying Coach.