Affordability Calculator
Now that you have decided that you want to purchase a home, the next step to achieving your dream of home ownership is locating the home that you want to buy. Although everybody has fantasies of magnificent luxury homes like the ones that celebrities and presidents of Fortune 500 companies live in, the unfortunate truth is that everybody has to live within their own means. Usually prospective homebuyers have a specific price range that they narrow their housing search to. This helps filter out homes whose prices are either too unrealistic for the homebuyer to actually afford and homes whose prices are low because they do not meet the criteria of what the homebuyer is looking for in a home. The last thing that a prospective homebuyer wants is to fill their days off with looking at homes that they either can't afford or would never want to buy in the first place.
By creating a specific price range for buying a home, the prospective homebuyer has significantly reduced the time and effort required to locate a home that they would want to buy. Through this filtering process, the homebuyer will be able to focus on other aspects of what they want in a home that does not relate to the sale price. The specific housing pricing range of a homebuyer will obviously vary for each prospective homebuyer. However, there are a number of factors that will be used to determine the specific price range. These variables include:
Annual income: which is used to determine how much expenditure that the homebuyer can afford to commit to mortgage payments. Also, annual income will help determine the type of home loan that the prospective homebuyer will realistically obtain.
Additional income: if the prospective homebuyer obtains income from an additional source outside of their regular job, such as through stocks, this extra income will be factored in to determine the level of mortgage payments that the prospective homebuyer can afford.
Job status: the stability of a prospective homebuyer's job and whether or not there is a prospect of advancement will help determine the flexibility of the prospective homebuyer when they shop for a mortgage loan.
Monthly payments: the extent of expenditures that the prospective homebuyer is responsible for will be subtracted from the prospective homebuyer's monthly gross income in establishing their monthly income. The monthly income level is important to determine when establishing a range of how much mortgage expenditure that the prospective homebuyer can afford to pay. Examples of monthly payments include: car payments, student loans, personal loans, and insurance.
Expected down payment: the down payment amount is the portion of the home sale price that the homebuyer is responsible for that does not incorporate any of the finances obtained through a housing loan. The amount of down payment that the prospective homebuyer can realistically afford will be a major factor in determining the type of loan package and the terms of the loan that the homebuyer will be able to obtain.
Additional property expenses: a thorough analysis of local real estate market conditions will help the prospective homebuyer factor in additional property expenses into determining what pricing range is considered affordable for the homebuyer. Expenses such as home insurance rates and property tax rates should be factored in, as they are unavoidable.
By determining the pricing range for homes for sale that the prospective homebuyer can realistically afford, the homebuyer will be able to continue their housing search with additional confidence. Although the best method in obtaining the house pricing range that a prospective homebuyer should look in is through a discussion with a professional financial consult, there are times when an informal estimate of the pricing range that a homebuyer should narrow their housing search is needed. One particular time is when the homebuyer embarks on their quests to find a home that they want to purchase.
In these situations, there is one instrument that will help the prospective homebuyer find the pricing range in which they can afford to buy a home. This instrument is the affordability calculator. An affordability calculator will be able to determine the most expensive home that a prospective homebuyer can purchase and will also establish the maximum mortgage amount that the homebuyer can responsibly afford. Although there are a variety of affordability calculators that are available that have some minor differences, there are some core elements to an affordability calculator that helps it achieve its goal.
Maximum down payment amount Interest rate on mortgage plan Length of time on mortgage loan plan Annual income Monthly payments Property tax rate Home insurance rate Lender's qualifications ratio, which encompasses a front-end ratio to back-end ratio that is used to determine whether or not a prospective homebuyer will qualify for a specific loan program.
Outcomes
From these variables, the Affordability Calculator is to produce these outcomes:
The maximum price for a home that the homebuyer can afford. The maximum mortgage amount that the homebuyer can obtain. An estimated monthly mortgage payment amount. An estimated monthly private mortgage insurance payment amount. An estimated monthly property tax amount.
Through the use of an affordability calculator, the prospective homebuyer will be more prepared in planning for the future financial obligations tied to buying a home. Not only will the figures produced by an affordability calculator narrow the homebuyer's housing search to a manageable level but it will also be used to help prepare the homebuyer in their attempt to obtain the financing necessary to purchase a home.
