How much home can I afford?

Just how much home you can afford relies on two factors: how much money you can borrow, and how much down payment you have available to put down on the home. Thanks to the Internet, you no longer have to sit down with a lender to get an idea of what you can afford, as there are several online resources where buyers can key in a few numbers and get an estimate of how much home they can afford.
Ginnie Mae (a corporation within HUD) has a homeownership mortgage calculator on its Web site at www.ginniemae.gov/index.asp. You key in your gross income and liabilities and the site will spit out a rough estimate of what you can afford. If you want a more detailed estimate, click on ‘‘detailed estimate’’ and key in more parameters to obtain a more precise calculation for your specific region. Bankrate Inc., an Internet consumer finance marketplace that owns and operates a portfolio of Internet-based personal finance channels, also has a good ‘‘How much house can you afford?’’ calculator online at www.bankrate.com/brm/calc/newhouse/cal culator.as.

Using the following parameters, the calculator will produce two estimates for you: affordable mortgage payment and affordable home amount.
❑ Gross Monthly Income: Wages, investments/dividends, alimony received, other income
❑ New Home Info: Down payment, loan term (use thirty years if you aren’t sure), interest rate (use 6.5 percent if you aren’t sure), homeowners insurance (estimate $800 to $2,000, depending on size of the home, location, and your own insurance record), and real estate taxes (check your local tax collector or property appraiser’s Web site for last year’s taxes assessed on a property that you might be interested in)
❑ Monthly Expenses: Car payment, alimony paid, credit card payment, other debts

A word of caution: While this process will give you an idea of what size home you can afford (provided you’re forthcoming with the numbers), don’t confuse it with a ‘‘preapproval’’. A prequalification estimate basically states that you’re qualified for a loan based on a few preliminary questions, but it doesn’t commit a mortgage lender to approve the mortgage. The mortgage lender will still have to conduct a complete review of your financial situation, including your credit report, income, and employment history. The preapproval process is very thorough, with the lender doing much of the work needed for a full-fledged approval, but without your having to identify an exact property for purchase. A lender’s prequalification process will give you a ballpark estimate of how large a mortgage you can afford. It doesn’t matter which lender you obtain this from, since nearly all of them use the same criteria when determining what size monthly mortgage payments, property tax bill, and homeowners insurance you can handle. This will give you a good idea of the maximum mortgage amount you can afford and will help you focus your house search on properties within your price range.

How do I determine whether a neighborhood is right for me?

One great way to experience a neighborhood before buying is by driving through it at different times of the day. If you’re looking for evidence of other young families, for instance, drive around either after school or on weekends, when children are most likely to be out playing. If you’re concerned about noise from a nearby intersection or other neighbors, cruise through late at night, watching and listening for any signs of disturbance that might end up being a nuisance.
You can use a similar drill for condos, town homes, co-ops, and other types of detached housing, with one advantage: Because the units are usually close together—and sometimes joined by a common area—you can more easily talk to a few current owners. When doing so, don’t be afraid to ask how satisfied they are with their own home choice. Tell them that you’re thinking about buying a home in the development and ask them some or all of the following questions to get a feel for the development. If any of the answers or comments send up red flags, dig a little deeper (perhaps with another owner) to find out if the complaints are valid and worth noting:

❑ How do you like living here?
❑ Have you run into any major problems or issues in the development or surrounding community?
❑ Do the residents tend to be loud, quiet, or in between?
❑ Are there children living in the development?
❑ Does the area have any major issues with crime?
❑ Is the condo management firm or homeowners association receptive to its residents who have problems or issues?
❑ Would you recommend this development to one of your friends or family?

When shopping for a home you’ll also want to look at the positioning of the home. If you have small children, for example, then a cul-de-sac would be a perfect choice, even if the homes on that particular part of the street don’t fit your perfect home profile. Think about it: Would you rather have a fireplace or peace of mind knowing that your child is riding a bike on a street where few cars drive through? Also, if you have a large extended family that owns more than two cars, you might want to avoid a corner lot with a small driveway, since parking those cars on the grass is probably not an option.
Last but not least, talk to someone or do a bit of research on the neighborhood and surrounding community. Find out if it’s a part of the city or an unincorporated area of the county (the latter usually means lower property taxes and fewer regulations, but also fewer city services). Ask about future infrastructure projects (you don’t want to find out a month after closing that a fifty-foot-high cell phone tower is being constructed ten feet from your property line), and any such projects that your condo or homeowners association might be ready to hand out hefty assessments for, like a $5,000 per-unit assessment for new roofs. All of these issues should be factored into your choice of location and used to help make the best decision.
When choosing a location, also remember that not everyone can afford the perfect home in the perfect neighborhood, but that compromising on both ends just might find you living in a nice home in a good neighborhood. In the long run, most buyers find it better to live in a less-than-ideal home in the right location, rather than the other way around.