The purchase and ownership of a home is likely the largest investment you will make in your lifetime, and naturally involves a lot of financial questions.

The first step in looking to purchase a home is discovering what you can afford. Your credit history and the amount of your income, debts, and your down payment determine the amount of a loan for which you can be approved.

• How Much Can I Borrow?
• Am I Better Off Renting?

How Much Can I Borrow?

 

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Most Lenders use debt-to-income ratios to calculate the qualifying amount. For example, a lender may tell you that your mortgage payment cannot be more than 28 percent of your monthly income, and that your total monthly debt payment (including the new mortgage payments) cannot exceed 36 percent of your monthly income.

Am I Better Off Renting?

 

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If your financial situation is unstable or you have difficulty qualifying for a mortgage, you may wish to opt for renting rather than purchase. The decision to rent or buy involves many factors, but simple cost comparisons can be made to help arrive at an informed decision:

• Purchase Costs
  • Discount Points
  • Other Closing Costs
• Ownership Costs
  • Interest
  • Property Taxes
  • Property Insurance
  • Mortgage Insurance
  • Maintenance and Utilities
• Selling Costs
  • Real Estate Commissions
  • Closing Costs

These must be weighed against the following benefits of buying:

• Tax Savings - Paying Interest
• Appreciation (increase in home's value)
• Amount of principal you repay with each monthly payment.
• Everyone's financial situation is unique.