As home prices rocket up in Los Angeles, some who fear being left out of ever affording a home are quickly sizing up the market. Part of that equation is an actual equation. How much can you afford? Even if you think you can afford a certain amount, the lender or now the US government may not agree with you. New restrictions put in place as a result of Dodd Frank have created rules regarding what are safe loans.
See a home mortgage affordability calculator right here.
In some ways determining the amount that you can afford to pay for a
new home may seem like a simple process. You figure out your net
income after taxes (the amount of your paycheck), and you subtract all
of your other payments and expenses other than housing. The answer is
how much pr month you can afford for your new home. You would be right,
of course, but it isn't quite that simple.
First of all, banks
and other lending institutions, have standards that you must meet in
order to get a mortgage from them. While these vary from company to
company, there are some rules of thumb that you can use. The total
mortgage payment plus property tax and homeowners insurance AND any
association dues, should not exceed 28% of your net income.
Now
add all other debt payments for cars, credit cards, installment debt,
and the like. The total of your your cost of homeownership above plus
your cost of paying these debts should not exceed 36% of your net
income.
Because homes cost more in the Southern California area
than they do in say, Detroit, and because the cost of heating and air
conditioning is much lower here, many lenders will allow slightly higher
ratios than above. The 28% and 36% are still excellent standards to
use in your own planning.
Another way to look at your personal
ability to pay is to compare all cost of homeownership with cost of
renting. This is fairly complicated and cannot be determined by
seat-of-the-pants methods. Calculators set up for this are useful.
Here are things that are commonly overlooked. Mortgage interest and
property taxes are deductible for purposes of IRS personal income tax.
If you are in the 20% tax bracket, you can roughly assume that you will
save 20% of your total interest and property tax expense on your federal
taxes. In California, you will also have tax savings on state taxes.
On
the expense side, many underestimate the cost of utilities, new
furniture, repairs, and upkeep. Most apartment dwellers do not have
high air conditioning bills, landscape expense, or need to replace the
roof. Pay special attention to estimated costs of water, trash,
electricity, gas, and sewage. Add to your budget a reasonable amount
for repairs and improvements.
Friday, February 15, 2013
What Mortgage Can I Afford in Los Angeles?
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los angeles mortgage consultant,
mortgage affordability calculator,
mortgage broker los angeles,
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