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¿Cuánta Casa Puede Pagar?

How Much House Can You Afford?

Congratulations, you’ve decided to buy a house. Can you afford it? Becoming a homeowner is fun and rewarding, but it also can be stressful. The more prepared and educated you are about the home buying process, the less stress you’ll encounter.

After you’ve determined your personal readiness to buy a house, such as narrowing down a location and if you’ll enjoy maintaining a house, the next thing you need to do is crunch some numbers to find out how much house you can afford.

Estimate your monthly payment

To estimate an affordable monthly payment, the majority of lenders use the classic 28/36 guideline. First, your monthly house payment (including mortgage principal and interest, property taxes, and home insurance) should amount to no more than 28% of your monthly gross income (what you earn before income taxes, Social Security, and other deductions come out of your paycheck).

Consider total monthly debt

Second, total monthly debt obligations (mortgage, car payments, credit cards, and college loans) should not exceed 36% of your monthly gross income. Guidelines vary and special programs exist for low-income borrowers that may stretch the qualifying numbers to 33/38, for example.

Determine down payment and closing costs

In calculating your cost to own a house, keep in mind that your down payment--most mortgage lenders typically require a down payment equal to at least 5% of a home’s purchase price--and monthly payments are only part of the cost of buying. If you buy a house with less than a 20% down payment, your lender will require you to purchase private mortgage insurance (PMI), which will increase your monthly payment.

You’ll need additional money to cover closing costs: lender fees, property appraisal, escrow payments, and more. And once you’re an owner, you’ll face ongoing expenses for routine maintenance that protects your investment.

How interest rate and loan term affect affordability

Over the life of your loan, your mortgage amortizes. That’s the process by which you gradually pay down the loan. In the early years of your mortgage, most of your payment goes toward interest. As years go by, your payment gradually shifts between principal and interest until, by the last year, almost all your payment is toward principal.

There is a mind-boggling assortment of types of mortgages to choose from--such as fixed-rate or adjustable rate--plus terms to choose from, such as 15, 20, or 30 years.

If you can afford the bigger monthly payments that come with a 15-year mortgage, you’ll drastically reduce the total interest you pay over the life of the loan.

The tables below show you the total interest paid over the life of a loan for a 15-, 20-, and 30-year mortgage. Each table assumes a $150,000 loan and a $30,000 down payment on a house priced at $180,000.

Use these tables to get an idea of what your monthly payments will be. Remember to also allow for property taxes and property insurance. For more specific information, talk with a mortgage loan officer at the credit union.

What Will My Monthly Mortgage Payment Be?

30-year mortgage

Interest rate

Monthly payment*

Total interest paid over life of loan**

4.0%

$716

$107,804

4.5

760

123,610

5.0

805

139,884

5.5

852

156,606

6.0

899

173,757

6.5

948

191,317

7.0

998

209,263

7.5

1,049

227,576

8.0

1,101

246,233

8.5

1,153

265,213

9.0

1,207

284,496

9.5

1,261

304,061

10.0%

$1,316

$323,889

 20-year mortgage

Interest rate

Monthly payment*

Total interest paid over life of loan**

4.0%

$909

$68,153

4.5

949

77,754

5.0

990

87,584

5.5

1,032

97,639

6.0

1,075

107,915

6.5

1,118

118,406

7.0

1,163

129,108

7.5

1,208

140,014

8.0

1,255

151,118

8.5

1,302

162,416

9.0

1,350

173,901

9.5

1,398

185,567

10.0%

$1,448

$197,408

15-year mortgage

Interest rate

Monthly payment*

Total interest paid over life of loan**

4.0%

$1,110

$49,716

4.5

1,147

56,548

5.0

1,186

63,514

5.5

1,226

70,613

6.0

1,266

77,841

6.5

1,307

85,199

7.0

1,348

92,684

7.5

1,391

100,293

8.0

1,433

108,026

8.5

1,477

115,880

9.0

1,521

123,852

9.5

1,566

131,941

10.0%

$1,612

$140,143

* Assumptions: fixed-rate mortgage and a loan amount of $150,000 after a down payment of $30,000; Monthly payment does not include private mortgage or property insurance or taxes.

** Figures are approximate

Source: CUNA’s economic and statistics department

Published 2-22-2010

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