Northern Virginia Real Estate Guide
Northern Virginia Buying Guide - Affordability

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Even though you are paying much less in interest over the life of the loan on a 15-year fixed, this loan may not be the better loan for you. If the lower payments on the 30-year loan allow you to qualify for the loan, buy a better property, or possibly to save more money into a retirement account, the 30-year fixed may be the better option. Besides, if you want to pay less interest over the life of your loan, you can always pay extra on the principal. Just make sure there is not a pre-payment penalty built into the loan program that you choose. If you have a pre-payment penalty there will be certain penalties that will apply if you pay down your principal balance early. Restrictions such as this must be clearly spelled out in the loan papers that you sign.

Monthly Mortgage Payment Calculator

Your housing expense will be totaled using the following example:

Item Estimated Monthly Housing Expense

Mortgage payment $_____________________

Property taxes + $_____________________

Insurance + $_____________________

Improvements, maintenance, and

Other + $_____________________

Home-ownership expenses (pre-tax) = $_____________________

Tax Savings - $_____________________

Home-ownership expenses

(after-tax benefits) = $ ____________________

What Are Your Assets?

The first thing you have to examine when deciding how much you can spend on your new home is how much you are worth, taking into account your income, savings, investments and other holdings such as Individual Retirement Accounts (IRAs) or Keogh plans, the cash value of your life insurance, pensions or corporate savings plans, and equity in real estate. Lenders will need this information before deciding to extend you the loan.

Often, the amount you earn may not be as important as how you earn it. Bonuses and commissions can vary greatly from year to year, and lenders are reluctant to depend on them if they make up a large part of your income. There are similar problems when a large portion of your salary is based on overtime pay, and you rely on it to qualify for the loan. To get a realistic view of what your income level actually is, average your income (including bonuses, commissions and overtime) for the past two or three years.

As a last resort, pensions and corporate thrift plans can provide another source of down payment money. Most plans or policies give you the option of either withdrawing your money with no repayment or borrowing against the cash value. Though it is not the best policy for most home buyers to borrow from these sources in addition to borrowing mortgage money, they can often get rates substantially lower than those on many other kinds of loans. Remember - if you borrow against the cash value of your life insurance or employee thrift plan, you will be making principal and interest payments for these separate from your mortgage. You should estimate these payments under installment loans on the worksheet inside.

While turning your savings, investments and other holdings into cash (making them "liquid"), remember that you will probably have to pay tax on most of it. One source of tax-free money often overlooked is a gift, or money given by a parent or other relative that need not be repaid. A person may give another person up to $10,000 per year without either party being taxed. Your parents, for example, could give you and your spouse up to $40,000 tax free.

Liabilities

Your liabilities are those expenses for which you are responsible each month. These include outstanding loans, such as student, auto, personal and so on, as well as credit card balances. When calculating your liabilities, use the entire balance for your credit cards, as if you had to pay them off entirely this month. That way, you give yourself some breathing room should you run up an unusually high balance during your mortgage term.

You should estimate these payments under liabilities on the worksheet.

Emergency Funds

It is always wise to put a little money away "for a rainy day" - especially when you are paying off a mortgage. If something arises such as unexpected medical costs or substantial auto repairs, you would want to be able to pay those expenses without jeopardizing your ability to meet your mortgage payments. Most financial experts suggest that you always have six months income on hand in case of emergency.

Annual Income

When calculating your annual income, remember to take into account all sources. You may, for example, get dividends from investments, alimony or child support payments. Calculate your annual income below.

Annual Expenses

This list should get you started, but you may have special expenses that are not listed here. Remember that when you buy your house you will no longer have to pay rent, and your utilities costs will change. You can use this rent money for your mortgage payments or other operating costs associated with your new home.

The Costs of Home ownership

Of the costs of home ownership, the ones listed on the next page are the most important. Homeowners insurance premiums usually run about $300 to $500 per year, and property taxes and maintenance costs will vary, of course, depending on the size, age and condition of your new house. Estimates for the costs of utilities, maintenance and improvements can be obtained from Realtors, local utility companies and others.

Some home buyers will also have an additional cost of home ownership if they are buying into a condominium or a co-op. Condo and co-op fees are additional amount usually paid monthly on top of the mortgage payments. Some homeowners will also incur a home owners association fee for their block or neighborhood. These fees vary greatly from location to location.

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