Cost of a New Home - Part 1

Economic fluctuations have many potential buyers spooked, but just because you are watching your money doesn't mean it is a good idea to stop spending entirely. For example, America is out there shopping for clothes in vast numbers, but the places that are selling out of their stock are not the trendy boutiques, but second hand stores and discount clothing outlets. Their business has increased with the decrease of business at more expensive stores. This is a good example of how difficulties for some are opportunities for others.

So you may have taken a financial hit recently, and as a result you are cutting back on expenditures. There are somegood rules of thumb for figuring out exactly how much is okay for you to spend, and how much is too much, regardless of whether you are making a lot of money or a little less.

1. Money now and money over time. Remember that when you buy a house you need to have saved up enough for a down payment and you need to be sure you can make future payments for the duration of your mortgage.

2. What is your upper limit? Find out what your current annual household income is. Now multiply that by four, and that will be the upper limit of what you can afford on average. If you can make a down payment of 20%, then you may actually be able to get the home that is four times your annual household income.

3. Make sure you have savings money for a down payment. Typically you will need to pay 10% up front or more, so if you don't have that, then you probably can't buy a home at all.

4. The bigger your down payment, the more loan options you generally have. If a lender knows that you can throw down a good chunk of money right off the bat, they will definitely be more interested in lending to you than if you have a small amount.

5. Debt hurts. If you have large amounts of debt, lenders are less likely to want to risk a mortgage on you, especially in current market conditions. The more debt you have to pay monthly, the less you can pay on your mortgage.

6. Consider a property with units that can be rented out, such as a cottage, or a duplex. The rent you will collect can be counted as income, and you will have access to a better loan as a result. Rent will also help you make those monthly payments.

That's what we have for you this week. Next week we will add more useful information to help you through the process of finding a home you can afford. Can't wait? Call us at (808) 579-8255 or email at Jim Sanders Real Estate, Inc. We will be more than happy to answer all of your real estate questions.  Should you choose to browse our Maui real estate listings, we suggest checking out our featured properties, which we hand-picked for your benefit. Or browse the side menu and see which categories appeal to you. We have a nice section on North Shore Maui homes, which is our specialty, and also a new Maui property section with listings from all over the island. Enjoy those, and we'll see you next week!