As a buyer it is a relatively easy process to determine how much you can afford in terms of a monthly mortgage. You can follow a few simple steps in order to calculate what a potential lender is likely to allow you to borrow.

The first step is to calculate your gross monthly income. Keep in mind that this means income that is recurring, documented and reported to the IRS. If the income does not appear on your tax return, it can not be counted. This includes base salary, commissons, bonuses, overtime, child support, and alimony.

If you are self employed it means the income you report on line 33 – Adjusted Gross Income – of your tax return, after business expenses have been deducted. There are many instances when self employed people will cite their gross income as a basis for their mortgage calculation, but it is only the net income that counts.

The next step is to calculate your monthly debt obligations, such as credit card payments, car loans, student loans, installment loans, child support and alimony.

Your monthly housing expenses will including principal and interest, taxes, homeowners insurance, mortgage insurance – if you are putting leass than 20% down -and condominium or homeowner association fees if applicable.

Now that you have your quailfled monthly income and monthly debt calculated, it is a matter of appling two ratios to those numbers to come up with an affordale monthly payment.

Most lenders will want you to allocate no more than 28% of your income to your housing payment, and will  limit your total income to debt ratio at 36%.

Assuming a $60,000 yearly quailfying income, $5,000 per month, a conservative monthly housing expenditure would be $1,400 (.28 x 5,000).  The maximum debt ratio of 36% would come to $1,800 per month (.36 x $5,000).

These ratios can be flexible, subject to vaiables such as credit score, down payment, and loan program guidelines, but serve as a conservative gauge of your purchasing power.

 

Wallingford PA Real Estate – Wallingford, PA 19086

A recent article appearing in the New York Times cited a study conducted by the psychology department at Gettysburg College showing that most people knowing nothing else about a city, would prefer to live in the northern half of a town rather than the southern half. The study found that there is a strong bias towards the north, the overall perception being that a northern location is seen as the more affluent point of a compass.

Researchers found that study participants expressed a strong desire to live in the northern part of a town. Participants saw the north as more affluent – 72.5% of respondents believed an affluent person likely lived in the northern half of a hypothetical city.

The bias likely boils down to psychology, and how we view the words north and south. Although north and south are abstract concepts, we tend to understand them in spatial terms, with north meaning up and south meaning down. Taking it a it a step further and look at the underlying emotional meaning of up and down, where up means good and down means bad.

Whether or not this geographic preference overrides any of the other numerous factors buyers consider when choosing a home is unknown – no real estate transaction data was included as part of the study.

Locally taking a look at the first half of this year, 9 out of the 10 highest priced homes that have sold have been located in the northern quadrant of Nether Providence Township. So perhaps in reality some of this perception may indeed be true.

 

Wallingford PA Real Estate – Wallingford, PA 19086