What can your current rent payment get you if you bought a home instead? Do you need a 20% down payment? No. How much do you need? Are there special programs available? Yes. How do you differentiate the different loan types and what you can afford? Let’s answer all these questions and more.
In my previous video, I walked us through figuring out exactly how much you can spend on a house payment each month. If you haven’t watched that video, you might want to watch that first. You can find that right here in the corner or in the description of the video. It’s only a few minutes long and I’ll wait. Just kidding. I’m not waiting.
To answer this question, I’m going to show you how a lender does it. Not one of those crummy online calculators that gets your hopes up, but then when you actually talk to a real lender, they tell you a completely different number.
It’s probably easiest to show you a couple examples as to why we cannot do that. Now both examples we’ll be showing are houses that cost three hundred thousand dollars.
House Scenario #1
Okay, house one. The price three hundred thousand, come on keep up, and we’ll have a five percent down payment of fifteen thousand dollars. So that leaves us with the loan size of about two hundred and eighty five thousand dollars.
For this house, we’ll say it’s a single family residence, and we’ll say the property taxes are 200 a month with a home insurance of 200 dollars a month. Our payment is going to look like principal and interest of about 1280. Taxes of 200, insurance of 200 and a total of 1680.
House Scenario #2
Now let’s look at house two. Same price, same down payment, same loan type. But this time it’s going to be a condo and the property taxes are going to be 400 dollars instead. Maybe it’s a little bit nicer area. That’s going to have an HOA of 250 a month and a home insurance of another 25. So that payment when we add all that up is quite a bit higher. Now we’re at a payment of around 1955. Boy. That escalated quickly. Thanks Ron.
So what we see here is, even the exact same loan can have very different payments. The loans can be the exact same but the payment can be affected by the property. This is why lenders actually approve people to a payment and not to a house price. An experienced lender will be careful to explain this to a new client and get a clear idea of the areas and the home types that the buyer is considering. So there are no surprises when they’re ready to put in home offers, right?
So how in the world are you going to figure out what you can actually afford in your area and for your type of home? Well, the best way is probably to talk to a local expert. But if you’re still on the, I’m not ready for that yet stage, here’s an easy way to get the most accurate without talking to an expert.
Type of Property
Number one, let’s figure out what property you want to buy. If it’s condo or planned unit development, which is a regular housing community but with some added amenities, like a pool or a clubhouse that come with a residency there, we’re going to want to check out what the average and high-end HOA costs are for that area.
Number two, let’s look into your rough price range and get a feel for the property tax range you can expect for the homes you’re looking at. Every home listing will show you the property tax amount. So this will help you get the feel for the areas that you like and the monthly amounts you can expect.
Remember, the bigger the house, the more the property tax. Now let’s find the average interest rate. Freddie Mac posts this here for the prior month. It’s a bit old data, but it’s a good start and it’ll get you close. Now that you have these numbers, you can plug them into whatever calculator you like. If you don’t have a 20% down payment, don’t forget about the mortgage insurance. And if you’re not sure what a good calculator looks like, I’d be happy to send you mine. I’ve put this link in the description.
I made this myself and I’ve been tweaking this for about 17 years so you can have it for free. No strings attached. Just hit download. And if you really want some help, I do these in my sleep. Me and my team would be happy to help.