How Much Home Can You Really Afford?

Most people take for granted how much home they can afford.  If the real estate agent or mortgage professional tells you that you can get up to a $300,000 home, do you argue?  Most times not.  Most people don't question it.  But you should understand it and make sure you don't get in over your head in mortgage payments.

There are several factors: credit score, total assets and what's known as your "debt-to-income" ratio (DTI). Your DTI is extremely important, yet most people have never heard of it. In simple terms, DTI is your total "minimum" monthly debt payments divided by your gross monthly income. Here's a good rule of thumb: the lower your DTI, the better.

What is "minimum monthly debt?" It's the amount you are required to pay on a monthly basis, like your car payment, student loans and credit card payments. If you pay more than the minimum amount on your credit cards, this does not count against your DTI, since only the minimum amount you're required to pay is included in the total.

Keep in mind that minimum monthly debt simply means the minimum you have to pay each month. Even if you owe $5,000 on a high interest credit card, if your minimum monthly payment on that card is $100, that is what goes into figuring your DTI. But be careful. Only paying minimums can actually make some debts grow larger.

Go over all your expenses and debts with your mortgage professional when buying a home. Make sure you understand how your home affordability is calculated. By planning properly, you'll be in the best financial shape to make sure your dream home doesn't turn into a nightmare.

If you have any questions about this article (or any other we've posted here), please leave us your comment.

Rent-to-Own Real Estate Deals - Beware!

Rent-to-own contracts that substitute for mortgages and conventional home loans are enjoying a surge in popularity in several regions of the country. The slumping real estate markets in parts of the U.S. fuels these deals, where homes can sit on the selling block for months at a time.

Add to this the recent tightening of rules and regulations for bad credit loans and a near perfect storm has been created for rent-to-own scenarios. It sounds like a great way for home sellers to speed up the sale of their home.

While the benefits of rent-to-own arrangements may seem strong, both the buyer and seller need to be aware of problems that can result from poor planning.  Get the complete story here:

Housing Slump Could Last Til Year's End

The U.S. housing market will continue to slump for the remainder of 2007, with home sales falling further and price growth continuing to slow.  This word from a leading industry economist, David Berson, vice-president and chief economist at Fannie Mae, said 2006 and 2007 combined will show the biggest drop in sales since the housing downturn of 1989-91.

An increase in mortgage rates over the past few months, particularly in the past month, will soon have an additional negative impact on housing demand, according to Berson.

He expects new and existing home sales to decline by 10.2 percent in 2007 to the lowest level since 2002. Single-family starts are expected to fall 21.7 percent.

For more on this news… click here:

Housing Slump Gets Longer and Longer

The slump in home sales and prices will be deeper and last longer than previously expected, according to the latest forecast by the National Association of Realtors.

The trade group is now looking for flat prices for existing homes in the first quarter of 2008 compared to the first quarter of 2007, and a more year-over-year declines for new home.

For the complete story, click here…

Bad Credit? Insurers Will Make You Pay

By now you know that you need to keep tabs on your credit history to make a good impression on lenders, landlords and employers.  But did you know that your home insurer is also looking?

In most states they're allowed to use your credit information to formulate premiums - and in June the U.S. Supreme Court decided that your carrier doesn't need to tell you if your credit has caused you to pay more.

How insurance premiums are determined is a recipe long kept secret from consumers.  Some 90 percent of homeowner insurance carriers use a score based on credit data as part of that recipe, according to risk-assessment firm Fair Isaac, known for its FICO credit score.

However the scores are tabulated from your insurance company, here are a few tips that should help you get a better rate on your homeowner's insurance the next time your insurer takes a peek at your credit report:

• Pay bills on time: Late payments show up for seven years.
• Keep revolving balances low: Insurance companies look at how much debt you have relative to available credit.
• Keep your oldest credit card: Insurers like folks with well-established lines of credit. Five years is good, 10 ideal.
• Don't apply for lots of credit at once: Your score might drop. (You're not penalized for shopping, however; multiple auto or mortgage inquiries within 45 days are considered as one.)
• Get rid of miscellaneous cards you don't use: Having too many can hurt your score.

No matter who devises your score, the original data comes from credit bureaus.  So check your credit reports for accuracy.

Get a free copy from each of the three bureaus annually at annualcreditreport.com.