Real Estate Guide

Buying Your Home - Questions and Answers
'Home Affordability'

• What can I afford?
• What is the standard debt-to-income ratio?
• When is the best time to buy?
• How much will I spend on maintenance expenses?
• How long do bankruptcies and foreclosures stay on a credit report?
• What is Fannie Mae's low-down program?
• Where do I get information on housing market stats and trends?

What can I afford?

See >> Your Mortgage: Pre-qualifying and Pre-approval -  What can I afford.

What is the standard debt-to-income ratio?

A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total.

The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income.

Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price. (Note: 'No-doc' loans, as they are called, are quickly becoming a thing of the past because of their contribution to the mortgage meltdown of 2006.)

See also >> Your Mortgage - Pre-qualifying and Pre-approval: What can I afford.

When is the best time to buy?

Here are some frequently cited reasons for knowing when it's time to buy a house:

• You need a tax break. The mortgage interest deduction can make home ownership very appealing.
• You are not counting on price appreciation in the short term.
•  You can afford the monthly payments.
• You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
• You prefer to be an owner rather than a renter.
• You can handle the maintenance expenses and headaches.
• You are not greatly concerned by dips in home value.

How much will I spend on maintenance expenses?

Experts generally agree that you can plan on annually spending 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership.

Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.

How long do bankruptcies and foreclosures stay on a credit report?

See >>  Your Mortgage: Credit - Bankruptcies and Foreclosures

What is Fannie Mae's low-down program?

See >> Your Mortgage: - Fannie Mae

Where do I get information on housing market stats and trends?

See >>  "Market Data For Investors"