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Let's Talk Budget
We all know that buying a home is no small matter. Therefore, it is crucial to know what your current / future financial situation can sustain in regards to purchasing a home. Everyone is familiar with budgeting and knowing yours may help alleviate some questions you have about your financial situation. Let's look at a basic monthly budget. This consists of your expected monthly income minus all expenses you designate for that particular period.
Expected Monthly Income $,$$$
Leisure / Social Activities
Cell Phone Plan
Cable / Media
Credit Card Payments *
Car Payments *
Personal / Student Loans *
While examining this list it is important to recognize the difference in the types of expenses. Some are smaller and may change from month to month whereas others are more significant and will remain constant for extended periods of time. When being considered for a loan lenders will take into account certain expenses along with something called PITI.
* Indicates payments that are considered long-term obligations when lenders are determining approval status for loans.
What is PITI and why is it important? PITI is the combination of your Principal and Interest payments (also referred to as debt service) along with your Property Taxes and Insurance payments. Calculating your PITI will determine your total monthly house payment (may also include HOA dues if applicable). Before approving a loan a lender will typically refer to what is known as the 28/36 rule. This rule requires that your total monthly house payments (PITI) not exceed 28% of your gross monthly income and the total of all your long-term obligations not exceed 36% of your gross monthly income. Long-term obligations include your PITI as well as other expenses such as the examples indicated in the list above. Both of the requirements of the 28/36 rule must be met for loan approval.
PITI = Principal, Interest, Taxes, Insurance
All Long-Term Obligations = PITI + Other Long-Term Debt
PITI <= 28% Gross Monthly Income
All Long-Term Obligations <=36% Gross Monthly Income
In order to find the maximum house payment you can afford follow these steps:
Multiply your gross monthly income by 28%.
Next multiply your gross monthly income by 36% and subtract your other long-term monthly expenses ex: credit card payments, personal loans, car payments.
The lower outcome between steps one and two is the maximum amount you should spend on your house payment (Remember that this is your max so you may want set your budget lower to give yourself some breathing room.)
Check out Nerdwallet's free mortgage calculator and play around with some possible mortgage scenarios.
Learning the basics of your monthly house payments and what they consist of is a great place to start when considering your home buying budget. The best way to know for sure what you can afford and what options are available to you is to speak with a knowledgable lender.
As any Realtor will tell you shopping lenders is detrimental to finding the right deal for you. It is recommended to shop at least three to get a solid idea of what is available. If you need help finding a lender to speak with click here and remember the more knowledgable you are the better decision you can make. Every home buyer has a different situation and each lender will provide you with different offers as well. It is important to take all factors into consideration.
Here are some important topics to remember when interviewing lenders and searching for your loan:
Amount of money you have available for a down payment and closing costs
Gross monthly income
Current & future debt
Length of time you plan to occupy the property
Possible qualifications for a no-down-payment loan or first-time home buyer program
Average Homes Sales
Once you have an idea of what you you can afford check out these average home values (by Zillow) in the Triangle and surrounding locations to see what areas may best fit your budget!
Values by city
Fuquay Varina $217,700
Wake Forest $280,300
Raleigh neighborhood values
North Central $203,800
North Raleigh $259,100
Northwest Raleigh $269,200
Six Forks $387,800
South Central $114,100
South Raleigh $137,200
Southeast Raleigh $142,700
Southwest Raleigh $151,000
Ready to take the next step in your home search?
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Growing up in Eastern NC, I have always felt blessed to live in such a beautiful and diverse state. I appreciate being able to enjoy peaceful winters in the mountains and long summer days at one of ou....
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