What can I afford?

Can I Afford to Buy a House?Be Sure to Include in All the Costs
Ken Go (888)822-5363
Potential buyers sometimes forget to factor in the property taxes, homeowners insurance and the possibility of depreciation, as well as the costs associated with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design accessories once you move in.
The days of calling up the landlord to fix your problems come to an abrupt halt when you're a homeowner. You'll be responsible for everything from malfunctioning appliances to leaky faucets to broken heating and air conditioning units and everything in between. And if you buy an older home, you'll probably eventually encounter costly repairs, such as replacing the roof or windows.
To determine whether you can afford to buy a home, you should do the following:
1. Determine the property value of homes that interest you. The property value is determined by comparing the prices of homes recently sold of similar size in the same neighborhood. Your real estate agent will be able to provide this information to you.
2. Review different mortgage loan types and compare their required down payment amounts to the money you have available. Make sure you will have a payment that is affordable for a duration of three to five years, include that taxes and insurance. Don’t cheat yourself with the low rates or the negative amortization loans that is available.
3. Get a letter to guaranteed your closing costs, including points , taxes, recording, inspections, prepaid loan interest, title insurance and financing costs from your mortgage lender or a real estate professional. These will generally add up to between 2 and 3 percent of the property value. You'll receive an estimate of these costs from your lender after you apply for a mortgage but request for a guaranteed rate and fees.
4. Add the down payment requirements and the closing costs together to determine the amount of money you'll need right off the bat. But you're not done yet.
5. Think about the actual move. Will you hire a moving company or rent a truck? Either way will cost you. The more stuff you have, the more it will cost.
6. Property taxes. Many lenders will require an impound account in which monthly payments for property tax (and often insurance) are paid together with the monthly mortgage payment. You can figure your average annual tax rate will be about 1.25 percent of the purchase price of your home. For new homes, ask about Mello Roos ( Its an act that allows county, city or special district to finance public facilities and services thru homeowners).




7. Next, budget for maintenance and repairs.
8. If you have other income that will come in to help you pay the mortgages, make sure they are on going to be at least two to three years guaranteed and you should have an alternative plan if that fails.
Once you crunch the numbers and find you come up a bit short, investigate ways to reduce your debts or creatively increase your income—it can come from a variety of sources.
My advise to new homeowners: Make sure you can afford the payments and don’t cheat yourselves with short term loans or negative amortization loans that will get you in trouble.
For existing homeowners that are having problems paying: Don’t refinance only to be able to keep your head above water for a few months, if you cant really pay the mortgage sell your house and repurchase later when you can afford it then.
And of course, you'll want to weigh perhaps the biggest benefit of all—having a place to call your own.

Should I combine my first and second mortgage into one loan?

"I have an 6.75% first mortgage with a balance of $360,000, and a 10% second mortgage with a balance of $90,000. The second mortgage brought our total mortgage debt at the value of the property at that time, which is why the rate is so high. Our house has since appreciated about 10-15% in value, and I’m sure I can profit by refinancing. My question is, should I refinance the second only or should I refinance both, and if I refinance both should I take out two new mortgages or should I consolidate the first and second into a new first? It is all too confusing.”

It is confusing. The best choice depends on a number of factors including:

Rates and points available on new loans. Critically important are the terms of new loans to refinance, relative to the terms on the existing loans. This will depend on what has happened to mortgage interest rates, the value of your property, and your credit rating since you signed for the original loans. When you have two mortgages, you must obtain price quotes on a new first for the amount of the balance on the existing first, and on a new second for the amount of the balance on the existing second. You also need a quote on a new first for the amount of the balance on both existing loans.

How long you expect to be in your house. Refinancing typically involves immediate costs to obtain future benefits -- the longer you have the mortgages, the larger the refinancing benefit.

Current value of your house. Appreciation in the value of your house may make it possible to refinance the first mortgage without purchasing mortgage insurance. If large enough, appreciation could allow you to roll both loans into one without paying mortgage insurance.

Remaining term on existing loans. The shorter the remaining term on your existing loans, the smaller the refinancing benefit. With a shorter remaining term, you pay off the existing loan faster, which reduces the cost of the higher rate on that loan.

Term on new loans. The shorter the term on your new loan(s), the larger the benefit from refinancing. While shorter terms increase the cost of monthly payments, this is more than offset by the more rapid pay down of the loan balance.

Your income tax bracket. The tax savings on interest payments usually reduce the net benefits of refinancing. The higher your tax bracket, the smaller the benefit of an interest rate reduction on a new mortgage. However, if the remaining term on the existing loan is short, expect the reverse -- the refinance benefit can be larger for a high tax bracket borrower. Complexities such as these make refinancing two mortgages perplexing.

If you could consolidate both of the existing loans into a single new first mortgage at 5.875% and one point, the savings over 6 years would be even greater -- $7187. Every case is different but we can help you analyst your situation and determine how much you would save by refinancing or not.