Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
PenFed Mortgage with Confidence
MORTGAGE
How Much Home Can You Afford?
What you'll learn: Gain an understanding of what budget you're looking at for your home search
EXPECTED READ TIME: 5 MINUTES
February 25, 2021
As you begin to think about buying a home, it's important to be realistic about how much you can actually afford. See more on what to keep in mind as you venture into home buying – starting with using the PenFed Affordability Calculator, which can help you figure out your budget.
A home affordability calculator only needs a few pieces of information, starting with your annual income. If you're purchasing with a joint borrower(s) or combining assets, use the total income for all parties. You'll also need an estimate of your recurring monthly debts, including all credit cards, car payments, and overall monthly outgoing bills. Determine what you might have for a down payment and the term of your loan (for example, a 30-year mortgage). The calculator will quickly provide a range of what you might be able to afford.
What is DTI?
DTI stands for debt-to-income ratio. This is an equation that calculates all your monthly debt payments, including your proposed housing debt, and compares it relatively to your pre-tax income. The following is a DTI example:
● Total monthly pre-tax income = $4,000
● Total monthly debt payments including mortgage, taxes, and insurance total = $1,140
● Your DTI is $1,140 divided by $4,000 = .285 or 28.5%
What are total homeownership costs?
It's not uncommon for a financial institution to inform you that you can afford more than you thought you could. Before looking at the bigger, more expensive home, fully understanding the total cost of homeownership is important.
A monthly mortgage payment is only part of buying a home. You may need money for a down payment on your home, as well as closing costs, property tax payments, insurance, possibly private mortgage insurance (PMI), and more. Here are some additional expenses you may want to consider before taking the plunge into homeownership:
● Possible homeowners association (HOA) fees
● PMI or monthly insurance premium (MIP) – may be an expense if you don't have a VA loan and put down less than 20%
● Water
● Electric
● Trash collection
● Appliances and repairs
● Roofing care
● Pest control
● Yard care and tools
● Heating and air conditioning (HVAC)
How much of a down payment do you need?
There are several ways to answer this question. Typical guidance is a 20% down payment if you can afford it. However, on a $250,000 home purchase, that means you'd need $50,000 for the down payment, and you’d still need another 2-6% for closing costs. Let's examine down payment needs across a few different loan types to better understand what you can afford. You should note that while typical guidance is a high down payment, as it lowers lenders’ risk to loan you money, most lenders have down payments in the 3-5% range, or if you’re eligible for a VA loan, that could potentially mean $0 down payment!
How much can you afford with a VA loan?
One of the biggest benefits of VA loans is that they typically require no down payment and generally offer better rates. The potential costs for a $250,000 home with a VA loan:
● Require that the down payment may be as low as $0
● Closing costs are generally between 2-6% of the purchase price
How much can you afford with a conventional loan?
You can typically get a conventional loan by putting down as little as 3-5%. However, if you have a down payment of less than 20%, you’ll need to have PMI, which is a monthly cost incorporated into your home payment. The potential costs for a $250,000 home with a conventional loan:
● With 5% down = $12,500 down payment
● Closing costs between 2-6% of the purchase price
● Monthly PMI payment
How much can you afford with an FHA loan?
FHA loans can require as little as a 3.5% down payment but will also require MIP. With MIP, you may have to pay an up-front and an annual mortgage insurance charge. With both PMI and MIP, you could be paying additional insurance payments for years until you've built up enough equity in your home, or possibly for the life of the loan. The potential costs for a $250,000 home with an FHA loan:
● With 3.5% down = $8,750 down payment
● Closing costs between 2-6% of the purchase price
● Possible up-front and required ongoing MIP payment
SIMILAR ARTICLES
Creating Your Home Buying Budget
How much should you budget when buying a home? PenFed Credit Union offers a list of all the expenses and costs you may encounter as you complete closing your home.
What Are the Different Types of Mortgages?
There are different types of mortgages for all financial situations. PenFed Credit Union provides details on different mortgages which might be right for you.
Can I Afford to Buy a Home?
It is important to understand if you can afford to buy a home with your current income and expenses. PenFed has listed some tips for you to prepare to buy a home.
What Are the Steps to Buying a Home? Part 1
If you are a first-time homebuyer, there is a lot to think about. PenFed Credit Union takes you through the steps of what you need to know before buying a home.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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