If you are a renter considering buying your first home, your first step should be determining what mortgage amount you can afford.
Use the following worksheet to calculate an estimate:
Job-related income ________
Investment income ________
Yearly bonuses ________
Additional income ________
Total Income ________
Yearly taxes ________
Monthly savings ________
Medical bills ________
Car payments ________
Car expenses ________
Credit card bills ________
Student loans ________
Additional loans ________
Day care ________
Total Expenses ________
Subtract total expenses from total income ________
This amount is your discretionary income.
Discretionary income divided by 12 ________
This is your monthly disposable income.
Now you will need to decide how much of your disposable income can go toward a mortgage payment.
Mortgages come in two basic forms: the fixed-rate mortgage and the adjustable-rate mortgage (ARM). A fixed-rate mortgage has a fixed interest rate that never changes, and the payments will be the same amount for the duration of the loan. An ARM has an interest rate that fluctuates with the market and the economy, although increases are limited to a certain number of points per year and over the life of the loan.
Another challenging aspect of buying a first home is the down payment. Traditionally, lending institutions have required a 20% deposit, and paying 20% down will help you avoid paying private mortgage insurance (PMI). However, many prospects exist today for down payments as low as 3% or even 0%.
If a large down payment is not possible for you, consider these options: