How Much Can I Afford?
How to Find a Home You Can Afford
Determining how much home you can afford in Durham, Chapel Hill, Carrboro, and the surrounding area can be a trying process. Calling lenders, looking at mortgage loan programs and interest rates can be confusing, to say the least. There is an easy way to get started and give yourself an idea of where you stand.
To get a clear picture of how much home you can qualify for, you need to contact a reputable local lender and let them analyze your entire situation. They can calculate your income-to-debt ratio, get your credit score, and give you the information you need. Typically, lenders like to see a ratio not exceeding about 28%. This does not take into consideration long term monthly debt. As an example, to qualify for a loan, lenders may require ratios of 28% or 36%. This means you can spend up to 28% of your gross monthly income on a mortgage payment, and no more than 36% of your gross monthly income on all forms of debt, mortgage included.
The first step is to determine the current mortgage interest rates. You can typically do this with a couple of phone calls to lenders or some quick looking on the internet.
We work with a number of loan officers and would be happy to recommend one right for you.
You can Save Thousands On Interest & Taxes
Purchasing a home can save you money very quickly. FIRST, you’ll save on taxes because the interest on your home mortgage is tax-deductible. If you rent, your landlord gets the break.
Second, you’ll save on interest payments while keeping a great tax advantage. Paying rent is like throwing your money out the car window each month. You pay it out and never see it again. With homeownership, you receive loan interest write-off and gain money over the years from the increased value of your home. Over a ten year period, on an initial purchase price of $100,000, you could gain over $100,000 in tax advantages and appreciation based on an 8% mortgage interest rate and 5% per year increase in home values.
For example, if you are paying $900 per month in rent, you are paying a portion of this towards your landlord’s property taxes and mortgage loan interest. Your landlord can write this amount off. You derive absolutely no tax break. When you own a home, you now reduce your taxes for the mortgage interest and for your property taxes. Your interest is always the highest during the early years of your loan, so your overall write-off is largest during these early years.
On both the 15-year and 30-year loans, your interest deduction is highest in the first few years of the loan, so your tax deduction is highest then, too. Remember, if you plan to move or refinance after 5 years, you will maximize your tax deductions. Keep in mind that as you pre-pay part of your loan to reduce the interest expense, you also reduce your tax deduction. How long you plan to keep your current mortgage loan can help determine which type of loan, and which payment strategy, is ideal for you.
To find out more about how you can find a home you can afford, contact us today!