Mortgage Calculators Help With Mortgage Decisions

Lenders are much more conservative about approving home buyers than they used to be. Keep these guidelines in mind when using a mortgage affordability calculator

First-time buyers aren't the only ones who need sound mortgage advice. Times are tough, and lenders have implemented tougher underwriting standards and risk-based pricing policies. Todays's rules:

  1. Put 20% down or go with FHA.
  2. Fix your rate for as long as you plan to own your home.
  3. Watch for that 36%.
  4. Remember the plumber.
  5. First time buyer? Move fast if you want your tax credit.

As you make your mortgage calculations, make plans for finding a mortgage that you will have the resources to sustain through good times and bad.

Set Your Home Loan Calculator to 20% Down

Fannie Mae and Freddie Mac have some prodigious pricing surcharges if you put down less. In addition, borrowers are finding it very difficult to get approved for mortgage insurance, which is required if you have less than 20% equity. If you can't come up with 20%, look up FHA loan limits in your area and buy something in that price range--you can get away with as little as 3.5% down with an FHA mortgage.

Find a Fixed Rate Mortgage

As the economy veers up and down over the years, you know that your mortgage expense is stable. Fixed rate mortgages are just one option--statistics show that first-time buyers keep their homes an average of just over three years, and second-time buyers just five years. By choosing a hybrid adjustable rate mortgage, which offers a rate fixed for the first five years, you can save about one full percentage point on your rate--this equals a $178 per month savings on a $300,000 mortgage. However, if your next home is your forever home, go for a 30 year fixed rate loan--rates are unlikely to be as low in the future as they are now.

Follow the 36% Rule When Using a Mortgage Affordability Calculator

To be safe, calculate the cost of your housing expense plus your other monthly debts including student loans. The more conservative lenders do not generally allow total payments higher than 36% of pretax income, although they will go as high as 45% if you have strong compensating factors like a large down payment and excellent credit.

Enter Upkeep in Your Mortgage Calculator

In one financial planner's estimate, a homeowner who plans to take on some of the home-maintenance work and hire out the rest can expect to spend 3.6% of the purchase price each year maintaining a new house and 4.5% on an older home. These expenses can reach five figures if you owe at least $400,000 on your home. While tax advantages of home ownership can offset some of this cost, you you might want to consider it in your mortgage calculations.

Tax Credit Helps First-time Buyers

If you are ready to take the plunge on a first home, a new tax credit for 2009 can help.

  • The federal tax credit is up to 10% of the purchase price of your first home, with a maximum credit of $8,000.
  • The credit expires December 1, 2009, so you must close on your purchase before then. To make the deadline, avoid purchasing homes under construction or short sales.
  • Besides a traditional home, the credit applies to the purchase of a condo, townhome, mobile home, manufactured home, or even a houseboat, as long as it's a primary residence.
  • The government's definition of "first-timer" includes anyone who has not owned a primary home in the last three years. If you owned a rental but not a primary residence, are a displaced homemaker, or own a home that would cost more to bring up to code than it's worth, you too are a first time buyer. Check the HUD or IRS Web sites for the full story.

Take advantage of all of the resources that you can find to make your decision. Use a free mortgage calculator and get on with your future.

Posted By :
Dean Schermerhorn, MA, owner of Concise Communications, lives in Reno, Nevada. He has written for banking, health-care and manufacturing businesses and articles on finance and business topics.

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