Numerous Columbus OH Homes For Sale! But What Will Your Budget Handle?

So you've decided that you love one of those Columbus OH homes for sale. Excellent! Now let's figure out which homes in Columbus you can afford? The bank will determine your loan amount by considering your debt ratio, the down payment required, and the interest rate .

Figure your Debt Ratio.



First add up the household's monthly gross income. This is the amount of income you make before taxes and contributions are removed. Then calculate 2 figures called your "front-end ratio" and your "back-end ratio."

The front-end ratio shows how much you can comfortably afford to pay each month. For instance, FHA Loans call for a 31% front end ratio. This means that, if your gross income is $4,000, then your monthly mortgage payment (including principle, interest, taxes and insurance) cannot be more than $1,240. Most residential loans use a 33% front-end ratio, so with a conventional loan you possibly could afford up to $1,320 per month.

The back-end ratio figures your other debt payments into the calculation. It compares your debt to your income, and it is the figure that really matters. FHA Loans use a 43% ratio and conventional loans use 45%. This means that, if you gross $4,000 per month, you could afford a total monthly debt load (including a home mortgage) of $1,720 for an FHA Loan or $1,800 for a conventional loan.

Let's try using the $1,800 conventional loan back-end figure calculated above. This means that, if you have a mortgage requiring a payment of $1,000 per month, your remaining debt load (car payment, school loan, credit cards, etc.) must not total more than $800 per month. Remember that these are the outer boundaries of what lenders believe you can comfortably afford. Your own comfort zone may be a lower figure.



Determine What Price You Can Afford

Now that we have identified your debt ratios, you now need to calculate what price of home you can consider buying. Your monthly payment will be determined not only by the amount of money you borrow, but also by the interest rate of the loan and also the time frame. The lower the interest rate, the lower your monthly payment. And the shorter the loan term, the higher your monthly payment.

If your debt ratio calculation shows that you can afford $1,000 per month for your mortgage (which has to include insurance and taxes), you can figure out how much money you can borrow up to, depending upon the loan's interest rate and term.

Most bank websites have mortgage calculators that will allow you to type in the variables to try different scenarios. For example, a $170,000 loan at 6% over 30 years will require a monthly principle and interest payment of $1,019. A $150,000 loan at 7% for 30 years will cost you $998 per month. If you're not able to put any money down on a home, then you shouldn't be looking at homes with selling prices higher than about $175,000. If you plan to put money down on the property, then you should be able to afford to go a little higher.



Decide On Your Comfort Zone

Think about how you would feel each month paying the absolute maximum you can afford. Wouldn't you feel stressed? Before you start looking at homes, figure out how much you would be comfortable paying each month. For example, if you decide that you don't want to pay more than $900 per month, then consider either looking for a lower-priced home or providing a higher down payment.



Figure Your Down Payment

This amount is calculated by the lender. Unlike some closing costs, it is not something you can negotiate for the seller to pay: you will have to come up with it yourself. Depending upon the type of loan for which you qualify-and depending upon your credit score-you might have to pay from 0% - 20% down.



Get Some Free Advice

The best first move may be to talk with your Columbus real estate agent. They will want to make sure that you find a home you not only can afford, but that you're also comfortable buying.