Deciding How Much House You Can Afford

One of the things I specialize in is helping my clients find the best loan program for their particular financial situation. Many people think home ownership is out of reach, but it is often not! Below are a few examples of programs that are available.

• The city of Los Angeles is offering up to $60,000 in down payment assistance.

• Cathay Bank is offering a 3% down loan with NO PMI, and is not just for First Time Home Buyers.

• Boston Private Financial is offering up to 100% financing!

• The Mortgage Credit Certificate increases your buying power and is available to First Time Home Buyers.

• CalHomes offers up to $60,000 in assistance.

• The Sapphire grant will give you up to 3% of the purchase price of your home that you do not need to pay back.

Your lender decides what you can borrow but you decide what you can afford.

Lenders are careful, but they make qualification decisions based on averages and formulas. They won’t understand the nuances of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from furnishings, to landscaping, to repairs.

Historically, banks use a ratio called 28/36 to decide how much borrowers could borrow. An approved housing payment couldn’t be more than 28 percent of the buyer’s gross monthly income, and his or her total debt load, including car payments, student loans, and credit card payments, couldn’t be more than 36 percent. As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we urge you to think carefully before stretching your budget quite so much.

Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.