Buying a House - Issue 8

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Money and Marriage
Issue 8. Buying a House

$ What Is a Mortgage? • $ How Much House Can A Family Afford? • $ Know Your Total Housing Costs • $ Legal Language • $ Strategies to Make the Lending Process Easier

Homeownership most likely means taking on mortgage payments and a tremendous amount of debt. Housing expenses constitute the largest expense in most household budgets. Dollars spent on housing often amount to as much as 40 percent of a family’s disposable income.

Before you decide to buy, answer these questions:

How much house can you afford?
What are the costs associated with buying and owning a home?
How do you qualify for a mortgage?

$ What Is A Mortgage?

A mortgage is a loan from a financial institution that allows you to purchase real estate. It is the difference between the amount of cash you have to put down on the real estate and the selling price of the property. Mortgages are made for 15 to 30 years. Each month when the mortgage payment is made, the borrower is repaying principal (P) and interest (I). Many mortgage payments today also include payments for taxes (T) and insurance (I). When you see the popular abbreviation “PITI,” it stands for principal, interest, taxes, and insurance.

$ How Much House Can A Family Afford?

Lenders usually follow two basic guidelines to determine how much money they will lend to a potential homeowner.

PITI should not exceed 25 to 29 percent of gross income (income before taxes and other deductions).

PITI plus other long-term debt• should not exceed 33 to 41 percent of gross income.

Long-term debt includes car payments, installment loans, credit card debt, child support payments and any other debt that will take more than 18 months to repay.

How Much Are House Payments?

Monthly Payment of Principal and Interest
Mortgage	6		7		8
Principal	15 year	30 years	15 years	30 years	15 years	30 years
$40,000	338	240	360	266	382	294
$45,000	380	270	404	299	430	330
$50,000	422	300	449	333	478	367
$55,000	464	330	494	366	526	404
$60,000	506	360	539	399	573	440
$65,000	549	390	584	432	621	477
$70,000	591	420	629	466	669	514
$75,000	633	450	674	499	717	551

$ Know Your Total Housing Costs

If you qualify for a mortgage payment (PITI) that is 40 percent of your gross income, think carefully before committing this much of your monthly income to a house payment. There are other monthly expenses associated with home ownership which should not be overlooked. These expenditures add to the TOTAL cost of owning a home. Check the expenses below that you might have and estimate their costs.

____ electricity

____ gas

____ water

____ cable TV

____ trash collection

____ telephone/cell phone

____ property owners association dues

____ pest/termite control

____ household cleaning equipment

____ yard care equipment

____ other ________________

When the cost of these items is added to the monthly mortgage payment, it’s easier to see how total housing costs can eat up a big chunk of the monthly budget!

$ Legal Language

Use these words to complete the statements and increase your knowledge about home ownership legal terms and abbreviations. Be familiar with these terms before applying for a home mortgage. Answers are at the end of the article.

Amortization
Appraisal Fee
ARM
Deed
Earnest Money

Equity
Escrow
FHA Foreclosure
Interest
Mortgage

Points
Principal
Survey
Title

_________ 1. Required to determine the specific boundaries of a tract of land.

_________ 2. A process which occurs when a borrower fails to pay a mortgage.

_________ 3. Gradual payment of a mortgage.

_________ 4. Money paid to obtain a professional estimate of a property’s value. (2 words).

_________ 5. A loan to purchase real estate with the real estate serving as collateral for the loan.

_________ 6. The legal right of ownership.

_________ 7. An account, holding money for insurance and tax payment, handled by a third party.

_________ 8. The amount of a debt, minus the interest.

_________ 9. The dollar value of real estate minus the amount still owed on it.

_________ 10. Federal Housing Authority.

_________ 11. A legal document used to convey real estate ownership.

_________ 12. The dollar cost of borrowing money.

_________ 13. Money paid in advance by the borrower.

_________ 14. Adjustable Rate Mortgage.

_________ 15. A deposit made to the seller of real estate to ensure that the property will not be sold to another party during negotiation.

See correct answers at the end of this article.

Common Real Estate Abbreviations

3BR 3 bedrooms
Kit kitchen
CH/A central heat and air
Ba bath
LR living room
DR dining room
h/w hot water heater
ac acres
s.f square feet
fin financing
WBFP wood burning fireplace
hdwd floors hardwood floors
fncd bk yd fenced back yard

$ Strategies To Make The Lending Process Easier

Before applying for a home mortgage, complete the items below. Your preparation will make the process easier. Check off each item as it is completed.

__Check your credit report. Correct any inaccuracies and straighten out credit problems up front.

__Shop around. Commercial banks, savings and loans, and mortgage bankers all offer home loans. They all want your business. Compare interest rates, fees, and services before making a commitment to a lending institution.

__Organize your paperwork. Lenders require lots of items to support their decision to lend you money for a home.

Have the following items with you when you apply for a loan.

___Pay stubs for the last 30 days as well as W-2 forms for the past two years.

___Bank account numbers and bank statements for the past one to three months.

___A list of any stocks and bonds, with values to date.

___If you rent, cancelled rent checks from the past 12 months.

___A list of all debts, including total owed, monthly payments, and account numbers.

___Certificate of Eligibility from the Veteran’s Administration if you want a VA-guaranteed loan.

___Tax returns for the past three years if you are self-employed. Also, if you are self-employed, you may need a current balance sheet and other information about your business.

Answers: 1. Survey; 2. Foreclosure; 3. Amortization; 4. Appraisal Fee; 5. Mortgage; 6. Title; 7. Escrow; 8. Principal; 9. Equity; 10. FHA; 11. Deed; 12. Interest; 13. Point; 14. ARM; 15. Earnest Money

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Money and Marriage Issue 8. Buying a House

Money and Marriage
Issue 8. Buying a House