How Much Can I Borrow?What We Should Vs Could Borrow It is not extremely difficult to calculate how much $$$ we can borrow, but it takes careful consideration when figuring how much money we should borrow.
Unless, you enjoy cash flow problems and desire to live from paycheck to paycheck—it is "WISE" to discover a realistic amount that you should, rather than could borrow for your new home:
Before we get started with determining how much you should borrow... ... you will want to gather a copy of your completed Income Statement and As stated earlier, the ...Income Statment documents and compares your household income received against your household expenses paid out each month, where the... ...Balance Sheet Statement tells your net worth. Meaning how much cash, equity and property you actually own minus how much you owe against it. LENDING GUIDELINES Lending institutions have guidelines to determine the maximum limit you are allowed to borrow for a mortgage. Both your debt to income ratio and your... ...net worth will be major contributing factors in deciding the amount you can borrow. The loan officer keys your personal financial data into their own loan calculator to come up with your borrowing limit. The limit you are allowed to borrow may set your house payment at a price that stretches your household budget tight. The decision is yours and your mates whether or not you want to go the limit. For those of you who choose not to live their lives stretched to the limit, it is crucial that you set your mortgage payment (including insurance and taxes) at a price you can easily afford. A household budget is essential to develop during the planning stage of your new home, and then live by it long after you have moved in. To get started, gather this past year's bills, bank statements, and any receipts you may have kept. Doing this will help you see what you have been spending. It is also "Wise" to consider how much you will want to tuck away for that "rainy day" or future "big" events. Attach either a true or practical figure to following questions to help you put a household budget into real perspective.
Once you have established figures from the questionnaire, add up all the amounts and record this total in the Miscellaneous section on a copy of your Personal Financial Report. To figure your total monthly budget, re-add your monthly expenses on your Personal Financial Worksheet. Don't get strapped with a huge house payment and little else. Allow yourself room to... ...breathe by adding a little financial flexibility. Once your household budget is complete, you will be able to figure a house payment that you can truly afford. At this point, finding your target house payment is easy as 1, 2, 3... ...or should I say: 1 + 2 + 3. Take the new figure of your Total Expenses on your Personal Financial Report and subtract that amount from your Total Income. What's left over, after all your fixed and non-fixed expenses, as well as savings, investments, etc..., is your TARGET HOUSE PAYMENT.
Now, that you have established your Target House Payment, you will need to figure an overall... ...budget for the cost of your new home. There are several factors that contribute to the overall budget when buying or building a new home, and each factor should be carefully considered. Check out the following:
You can find out any one of these loan variables by inserting the other figures into a loan calculator. The reason you should use a loan calculator is because your monthly Principal and Interest will change from month to month, which is called amortization. BuildWisely.com offers a loan calculator that that will give you an estimate on how much your Target House Payment can allow you to borrow. Click Here to go for a loan calculator You will need to input one of the following sequences of variables into the loan calculator to achieve a specific unknown value:
Most all loans have additional fees, however your goal should be to either find or negotiate a loan with the fewest closing costs, "points", and/or "origination fees". Now, take the Loan Amount (minus the loan fees, if any) that you came up with from inserting your values into the loan calculator and add that amount to what you have in savings. If you qualify for the loan, this is the amount you put towards your new home, which reflects your overall budget for your new home. Total Loan Amount – Loan Fees + Savings = New Home Budget Is your New Home Budget in reason with the price range of home you are wishing to build? If not, or your finances may need a little adjusting so you can afford to spend more on your home? Perhaps, your budget limits you to building this...
There are ways to achieve the home of your dreams and still afford it—when you "PlanWisely". Yes, it is going to take some work, but you can do it if you plan carefully, reduce your debt, choose the right building system, hire the right team-workers, and "sweat" a little. This entire book discusses all of the above topics, but right now we are going to focus on the following:
One factor to consider when deciding how much you should borrow is the amount of "equity" you have to put into your new home. Please read the following very carefully...
Webster's New World Dictionary Defines Equity As: "the value of property beyond the total amount owed on it in mortgages, liens, etc." Let's emphasize on: "Beyond the total amount owed". When construction is complete and you sit down with your lender to close the permanent mortgage on your home... ... it is "WISE" to have gained a nice gap between the amount of money you will actually borrow verses the appraised value of your home. A lender will generally loan only a certain percent of your home's appraised value and the balance beyond the loan amount becomes your equity. There are many different ways to put equity into your home. Check to see if you already have, or a can gain, one or more of the following.
Therefore, it benefits both parties to...Gain Equity. In order to prove equity, it is important to properly document, on paper, what you have begun accumulated towards your new home. For example: money you have in savings and/or land equity, as well as proof of equity that you have gained, or plan to gain, in the building process. Now, back to the... Equity G A P. You want a nice gap to reflect your home to be worth more than what you are going to have borrow against it for three specific reasons:
Private Mortgage Insurance (PMI) is a policy that protects your lender if you happen to default on your loan. You may be required to purchase this type of insurance at the time of closing if you do not have enough equity (at least 20%) built up in your home. PMI is a big expense that you should try and avoid if possible. Take a look at the following website: http://www.ftc.gov/bcp/conline/pubs/alerts/pmialrt.htm If you have less than 20% equity... ...you may also have no choice other than to keep a non-interest bearing Escrow Account that pays your taxes and insurance for you. Use your money "WISELY" and make sure you plan for all closing costs long before your home is finished. Now, let's look at what you Could borrow. But remember, there may be a BIG difference between: WHAT YOU SHOULD BORROW VS WHAT YOU COULD BORROW. I found a couple of web sites that offer different loan calculators. Try one at http://www.homeadvisor.msn.com or Choose the appropriate calculator on their web page then key in your own figures to estimate your limit. This will just give you a... ...guestimate, because—the interest rate, fees and other closing costs may vary from lender to lender and may not reflect the actual amount you will be allowed to borrow. OK, let's just get a general idea anyway. There are several websites that have loan calculators. If your current banking institution has a website with a calculator, you may want to try theirs first. If not, choose a reputable banking institution that you are familiar with.
You don't want to actually pre-qualify for a loan right now, you will do that later on. All you want to do right now is input data into the loan calculator to find out the maximum amount you are allowed to borrow, based on your income, and your house payment. Are you shocked? How is this figure in comparison to what you came up with in the previous section "What Should I Borrow"? Is it close or far, far away? Just in case you need reminded—let me repeat what I said earlier:
"Unless, you enjoy having cash flow problems and desire to live from paycheck to paycheck...
...it is "WISE" to develop a strict budget and figure an amount that you should spend on your new home".
More often than not, you will qualify for more money than what you should borrow. It is up to you and your mate's best judgment to decide to be conservative or just go all the way. If you have discovered that you won't qualify for near as much as you thought then it may be time to make some drastic changes in your spending habits.
Please Note: It is not necessary to give personal information out to use a loan calculator. However, if you decide to apply for a loan over the internet—take caution when submitting personal information and make sure that the company you are dealing with is reputable.
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