Calculate What You Can Afford

Before you start looking at homes, your first step is deciding what you can afford and what you want from a home. List your basic requirements such as location, size, and other features (for e.g., school district). This is not how much a lender will give you but what you are most comfortable spending so that you can still do all the things you love to do AND buy a home.

When it comes to affordability, calculate what your monthly payment will be for the mortgage plus any homeowners association (HOA) fees, taxes, insurance, utilities, maintenance, and other bills.

If you’re one half of a dual-income couple, consider finding a home where you can cover all the expenses on one paycheck. If you need help figuring out what you can afford, try a home calculator like this one from Bankrate.

The median home price as of July 20, 2016 for residential attached and detached in Atlanta was $287,000 according to the FMLS.

In general, it is a best practice to put down 20% or more when buying a home. At 20% down, you will have an easier time getting approved for a mortgage and will be able to avoid Private Mortgage Insurance (PMI), which is an additional monthly cost for low-equity home owners. PMI can cost hundreds of dollars per month.

If you don’t have a 20% down payment, you can still buy a house with a lower down payment but you’ll just have to pay monthly PMI. Many lenders and states offer loan programs geared toward first-time, low-income homeowners through the Federal Housing Administration (FHA) loan program, or military families through the U.S. Department of Veterans Affairs (VA) loan program.

Some lenders and banks also offer loans requiring as little as 3% down and if your credit is really good the PMI can be really low, but you will need to check with them to see if that is an option for you.

The more you put down, the more likely you will be able to negotiate for the lowest possible mortgage rate.

A higher down payment will lower your monthly mortgage payment, and there is no rule against putting down more than 20%. In fact, the more you put down, the more likely you will be able to negotiate for the lowest possible mortgage rate. Remember, you can also deduct mortgage interest payments on your income tax returns.

For example if you are buying a $220,000 house with 20% down, your down payment will be $44,000.

That is a big cash expense to pay all at once, so start saving as early as possible.

Check in next week for part 2 of 4.

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