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Community Center
Money Center
Buying a Home
BIG Ideas
1 Why Buy A House?
2 How Much Money Will You Need?
3 Are You Ready to buy a home?
4 Understanding Mortgages
5 What Can You Afford?
6 Finding The Perfect Home
7 Ways To Get Funds For the Down Payment
8 Home Buying Tips
9 Success Stories on Home Buying
V. What Can You Afford?

Your first step when looking to buy a house is to figure out your price range. To get a general idea of how big a mortgage you may qualify for, multiply your annual gross income by 2.5

For example, say you have a household income of $50,000 a year, then you might be able to qualify for a $125,000 home loan.
   
When people talk about income, they often refer to: gross income and net income.

Some more examples:

Your Annual Gross Income
Estimated Mortgage You May Qualify For
$25,000
$62,500
$30,000
$75,000
$35,000
$87,500
$40,000
$100,000
$45,000
$112,500
 

What about you?
About how big a mortgage could you get with your present income?

Note -
The 2.5 rule only gives you a general idea of how large a home loan you can afford. It doesn't take into account other information - such as other debts) that will affect the size of your mortgage.


Write your answers in your
Home Buying Checklist
 

Let's go a little deeper and see how banks decide how big a mortgage they will offer you. Banks have two tricks to determine how big a mortgage you may qualify for:
1 - House Expense Ratio and
2 - Debt Income Ratio

Both of these methods take into account your monthly income, current debts, and other mandatory costs when calculating the amount of mortgage that a
bank might loan you.
   
 
Do you remember what a ratio is? To learn more about ratios, click here
Calculating your Mortgage using House Expense Ratio.
1. The basic rule of the House Expense Ratio is that you can't spend more than 28% of your Gross Monthly Income on paying for your mortgage:
2. Think about how much money you earn every month. This is called your Gross Monthly Income (GMI).
3.
Your GMI =
Hourly Wage x Number of hours you work /week x 52 weeks/year
12 months/year
This is Mary's gross monthly income (GMI).
Remember, Mary works 30 hours a week at the toystore where she makes $8 an hour. She also has a small business on the side and makes $200/month on that.
GMI = $8/hour x 30 hour/week x 52 weeks/year
  _________________________________________________
12 months/year
=$1040/month + $200/month
=$1240/month
   
4. To get the amount of mortgage you can afford, apply the House Expense Ratio Rule by multiplying 28% or (.28) and your GMI.


 

Calculating your Mortgage using Debt Income Ratio.
1. The basic rule of the Debt Income Ratio method is that your total debts (including loans, credit card bills, child support, etc) cannot account for more than 36% of your total income. After all, you have to eat and clothe yourself, right?
2.

Where My Money Goes?
3.

Calculate your Gross Monthly Income (GMI) as we did above:

Your GMI = Hourly Wage x Number of hours you work /week x 52 weeks/year
12 months/year

Calculating Mary's Mortgage using the Debt Income Ratio Rule

Monthly Mortgage (and any other housing fees) Mary can afford
= (GMI x 36%) - all other monthly debts
= ($1240/month x 0.36) - all other monthly debts
= $446.40/month - $50/month = $396.40/month

 
For more examples of mortgages based on your annual income, click on the icon.
 

The House Expense Ratio and the Debt Income Ratio rules can vary from bank to bank. Every mortgage application is always handled on an individual basis. There are many affordable programs that you may qualify for depending on your financial situation.
For example, a conventional FHA loan has a more relaxed requirement. For them your monthly housing expenses + your debt cannot exceed 41% of your GMI.
   

You may also qualify for the Habitat for Humanity home building and mortgage program. This organization builds and rehabilitates homes with the help of you--the future homeowner.

Habitat for Humanity offers mortgages with no down payment, 0% interest, 20 or 30 year to families who qualify for their program.

Family partners, in turn, agree to help build the home (by providing 250 to 600 hours of work) and to attend certain classes. To learn more about this program, visit their website
   
 
 

UP TO LIST OF BIG IDEAS
VI. Finding the Perfect Home
 


You've figured out how much you can afford and are ready to take the plunge and buy a home. But wait… Aren't you missing something? Your home!
   

There are 4 basic steps to good house hunting:

  1. Setting Priorities: Deciding what's important to you
  2. Searching for a Home
  3. Making an Offer
  4. Closing the Deal
Follow the footsteps to get started on your own search.
FootPrints
 

 

 

Step #1

Setting Priorities:

Deciding what's important to you.

 
Think about exactly what you need in a home. Use this worksheet to help clarify what you are looking for in a new home:
  Basic Features What you need in a home

About the Building

 #Bedrooms
#Baths
Living Room Yes No Maybe
Dining Room Yes No Maybe
Family Room Yes No Maybe
Basement Yes No Maybe
Parking Own Garage Parking Garage
On Street
Dishwasher Yes No Maybe
Washing Machine Yes No Maybe
Type of Home
Owl Small click here for pros and cons		 Single Family Co-Op Condo Apt.
About the Neighborhood
 Near Public Transportation Blocks from the subway
Near Good Schools Yes No
Safety Yes No
Near Shopping Blocks from the grocery store
Blocks to other stores
 
Write your answers in your
Home Buying Checklist
 

 

Step #1
Search for a Home

 

You have your wish list. You know the style of home you want. What's next? Finding the house of your dreams!
The following list will provide you with the most common places where people search for their homes.