Housing by the Numbers

Photo credit: Jukka Niittymaa, freeimages

Photo credit: Jukka Niittymaa, freeimages

In our last post we broke down the A to Zs of homeownership, giving you the vocab you need to be a savvy homebuyer. This month, we’re looking at the numbers. Doing some number crunching can help you get ahead by controlling your housing costs and keeping your credit in tip-top shape. Here are some numbers you’ll want to know in your housing search:

  • 30%

    This is the percent of your income that you should dedicate to housing. Paying more than 30% toward your housing costs is considered overpayment, meaning it can make it harder to afford your other living expenses. This percentage is especially important if you are looking to buy a home. Lenders have what they call the housing or front end ratio, which is the maximum dollar amount they will allow for your mortgage payment. In general, they consider anywhere from 25%-33% of your income acceptable.

  • 20%

    If you’re buying a home, this is the amount of down payment needed to avoid private mortgage insurance. If you want to learn more about what private mortgage insurance is and why it’s required if you have a smaller downpayment, check out New Hampshire Housing’s blog post about the topic. Don’t have that much cash on hand and want options other than private mortgage insurance? There are other mortgage programs out there that accept lower down payments or even offer down payment assistance.

  • 620

    This is the minimum FICO credit score that is usually needed to get pre-approved for a mortgage. Depending on an institution’s lending standards, this number can be higher. The higher your credit score, the more likely you can get a lower interest rate. Strong credit can also make it easier when you’re renting; landlords are more likely to rent to a credit-worthy tenant. It’s important to understand what your credit score is and what goes into it so you can improve it or keep it in tip-top shape. FICO has a series of blog posts that explain your credit score, and we also offered some tips in our post “4 Tips for Building Credit That’s as Strong as Granite.”

  • 2.5-3

    If you have a good credit history, steady income, and low monthly debt, you can usually afford a home that costs two-and-a-half to three times your yearly income. This covers everything in your mortgage payment. If you have a large down payment you may be able to afford more; if you’re carrying more monthly debt, aim for a lower price.

  • 0-3%

    This is the usual percentage of the home’s purchase price that you will pay in closing costs. Closing costs cover the fees for your credit report, processing your loan, and the appraisal.

These are just some of the numbers you’ll encounter while getting ready to own. What are your tips to make these numbers work with your budget? Share your questions and tips in the comments! You can also reach us at home@stayworkplay.org.

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