Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.
Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn?t consider your current and future financial and personal goals.
Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?
Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.
1. Prepare a Detailed Budget
The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.
But that?s not the best method because it doesn?t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let?s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don?t have as much money to pay your mortgage as someone earning the same income with no debts.
Better option: Prepare a family budget that tallies your ongoing monthly bills for everything ? credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.
See what?s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.
2. Factor in Your Downpayment
How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home?s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.
The lower your downpayment, the higher the loan amount you?ll need to qualify for and the higher your monthly mortgage payment.
But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.
3. Consider Your Overall Debt
Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn?t exceed 43% of your gross annual income.
Here?s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:
1. Your gross annual income is $100,000.
2. Multiply $100,000 by 43% to get $43,000 in annual income.
3. Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.
4. All your monthly bills including your potential mortgage can?t go above $3,583 per month.
You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.
4. Use Your Rent as a Mortgage Guide
The tax benefits of homeownership generally allow you to afford a mortgage payment ? including taxes and insurance ? of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
Here?s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.
However, if you?re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You?ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there?s no room in your budget for those extras, you could become financially stressed.
Also consider whether or not you?ll itemize your deductions. If you take the standard deduction, you can?t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a ?what if? tax return, can help you see your tax situation more clearly.
G.M. Filisko is an attorney and award-winning writer who?s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR? Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.
The U.S. economy has been pretty even so far this year. Usually when new
figures are released, they paint a pretty picture worthy of putting above the
fireplace in that purchased new home. Recently, some numbers for the first
quarter were adjusted to show a slight contraction in the economy. The initial
response from Wall Street was unfavorable, but the correction itself is truly a
mere blip. Nobody is predicting that the market will take a sudden turn.
New Listings in the Milwaukee region decreased 1.3 percent to 2,773. Pending
Sales were down 29.8 percent to 1,229. Inventory levels rose 2.0 percent to
Prices continued to gain traction. The Median Sales Price increased 11.2
percent to $195,000. Days on Market was down 17.0 percent to 70 days.
Absorption rates were even with last year as Months Supply of Inventory
remained flat at 6.1 months.
One interesting effect of a weaker-than-expected economy is that the Federal
Reserve does not seem ready to raise short-term interest rates during summer,
as some had suggested might happen. New projections indicate that rates will
remain the same until September at the earliest. The dominant storylines in
housing are decidedly not negative these days. Instead, you’re more likely to
see top sales and luxury living highlighted than the woes of foreclosures and
All data for the market reports comes from the Multiple Listing Service, Inc. and is powered by 10K Research and Marketing. You can follow this link: Metro MLS Market Updates or visit www.metromls.com.
The West Allis-West Milwaukee School District would like to inform all Realtors in the West
Allis and West Milwaukee area that we have recently reinstituted defined High School
attendance boundary areas for all students attending either Central or Nathan Hale High
Schools. We are no longer offering free-choice for high school students.
There are defined attendance areas for all Elementary, Intermediate and High Schools. It is
important for potential home owners in the West Allis-West Milwaukee School District to
have this information. You will want to remind homeowners that our District also is
comprised of a small portion of the City of Greenfield, and the southeast corner of the City of
New Berlin. In fact, Hoover Elementary Schools is located within the city limits of New
This spring the West Allis-West Milwaukee School District?s School Board is putting together
a committee to review all attendance areas.
For information on the different attendance boundaries at each level please go to:
http://www.wawm.k12.wi.us then click on:
? District Information in the top tool bar menu
? District Information in the drop down menu
? Boundaries in the second drop down menu
Wisconsin Realtor’s Association
WRA Chairman of the Board Dan Kruse and WRA President & CEO Michael Theo
MADISON, Wis. ? The Wisconsin housing market grew substantially in March, with both home sales and median prices increasing at a robust pace over the past year. Home sales increased 16.1 percent in March 2015 over March 2014, and median prices rose 8.8 percent to $149,000 over that same period.
I see the Milwaukee Metro Market still sluggish. Interest rates are still low, but it is still difficult for Buyers to qualify to purchase a home. Prices seem slightly higher, but Closed Sales are still below last year. Days on the market has not changed since 2014. Inventory is low, and does not provide much selection in some markets for some of the qualified Buyers. Spring has Sprung, and the housing market should be starting to move. Let’s hope the Economy in this market continues to improve!
A RESEARCH TOOL PROVIDED BY METRO MLS
FOR ACTIVITY IN THE 4-COUNTY MILWAUKEE METROPOLITAN AREA
There has been talk of abundant cold and snow this winter (unless you happen
to live in California!). When weather patterns turn bad, like wicked bad, real
estate industry pundits tend to go gloom, assuming that Americans hungry for
homeownership are bothered by a little frozen precipitation. The nation will
unfreeze, inventory is expected to rise and home sales are widely expected to
increase. These are good times, indeed, and many of us now have an
enchanting shared experience that we can walk uphill to school both ways.
New Listings in the Milwaukee region increased 10.2 percent to 1,942. Pending
Sales were down 33.9 percent to 685. Inventory levels rose 3.7 percent to 6,725
Prices continued to gain traction. The Median Sales Price increased 12.3
percent to $169,000. Days on Market was up 0.6 percent to 97 days. Buyers felt
empowered as Months Supply of Inventory was up 5.7 percent to 5.1 months.
In national financial news, rumors that Fannie Mae and Freddie Mac could one
day be a thing of the past have people wondering about the future of the 30-
year fixed-rate mortgage. But let’s not sound the alarm just yet. A drastic
change to lending’s gold standard is certainly not on the immediate horizon.
Meanwhile, Federal Reserve Chair Janet Yellen seems to have no immediate
interest in raising interest rates for the first time since 2006. The economy
remains stable, which should keep housing rolling through the short-named
It?s been exactly one year since my husband and I purchased our first home. As one might expect, we?ve learned a number of valuable lessons this past year. There are plenty of articles full of useful tips for first-time home buyers. I am not going to repeat them. Instead, I will list the lessons I personally learned that I didn?t find covered anywhere else.
1) Think long-term and think re-sale:
Are you planning to have kids? Will you be taking care of elderly relatives? You might be planning to live in your first home for only a few years. In that case, who is your target audience when it comes time to sell the house? If you buy a house in a very bad school district or a house on a very busy street, when you are ready to sell the house, most families with children will be out of your list of potential buyers.
2) Make a list of items to check:
Home-buying is an emotional process. Ideally, you should set aside all your emotions when evaluating a house. Practically, that is impossible. Instead, make a checklist of your must-haves, nice-to-haves and other essentials. Then print copies of this checklist. Every time you visit a house, take the checklist along with you; take photographs so you can cross each item off your list. If you fall in love with the house and your checklist shows that the house has none of your must-haves, it will at least make you pause and think.
3) Look at ALL the expenses when you are budgeting for the house:
When budgeting for the house, don?t stop with principal, interest, taxes and insurance; add in utilities, cost of commuting and upgrades. Call the utility companies that service the house you are considering and ask for an estimate of what the cost will be, whether there are any budget plans available, etc. Will the gas budget for your car go up if you are moving further away from the places you frequently visit? Budget all of these expenses and see if you can still afford the house.
4) Ask for the homeowners association contract before you make a decision:
Our long term plan is to rent out the house, if and when we move away. With this in mind, once we identified the neighborhood we found most desirable, I asked for a copy of the HOA contract after going to an open house in the area. It turned out that none of the houses in that neighborhood could be rented out. If you are buying a house that is part of an HOA, it is absolutely essential to read the HOA contract before you do anything else.
5) Research grants and other sources of funding:
When I was researching our mortgage options, I came across so many grants and funding sources I have never heard of before. I always thought the income limit for qualifying for these types of funding would be very low, but I was pleasantly surprised by the generous income limit on many of the options. There are many different options based on profession (grants for teachers, farmers, etc.) as well as the area of the potential house (whether it?s in a rural area, high-poverty area, etc.) Research all the grants and funding options you are eligible for before you automatically decide you won?t qualify for anything.
6) Be sure to read your contract before you sign it:
A house is probably the largest purchase you will ever make in your life, so make sure you understand the terms of your contract. If you don?t understand any of the terms, ask your mortgage broker and your real estate agent. If they won?t explain the terms clearly to you, fire them; there are enough people who will be more than happy to help you and work for your business.
7) Learn about the neighborhood demographics:
If you are buying a house in a neighborhood full of renters, it only takes a few bad renters or bad landlords to drive the neighborhood down fast. If the neighborhood is full of single people, will you be happy there if you have very young kids?
8) If you like the view, buy it:
Buy the view, not the house. A set of people in our neighborhood are at war with the county for approving a new development next to ours. The reason? There was a wetland and a nice wooded area with a view of snow-peaked mountains from their homes. They bought their homes for that view. Now, within a year of moving in, their view is gone. Unless you own the land between your house and the view, don?t buy a house for the view.
9) Look beyond the staging:
I read about staging while I was researching buying a home, but I never expected the amount of staging a house goes through. The psychology does work; staged houses look far better than houses that are still being occupied. One house we went to had nightstands with lamps on it next to the bed that really increased the appeal of the room. In reality, though, there were no plug points anywhere near the lights. So practically that setup would not have been possible without remodeling. When you are considering a house, mentally try to remove the staging. Pay more attention to the layout of the house and the structure itself. Ugly wallpaper and paint can be easily fixed later.
10) All the old advice about buying your first home is true.
Some examples ? have an emergency fund, save for a down payment of 20 percent, get your credit into a better shape and don?t buy more than you can afford. If you need a refresher, here are some good articles: Roadmap for a Successful Relocation, Should You Buy a Home Now?, 11 Tips for First-Time Homebuyers, Renting vs. Buying: The Realities of Home-Ownership, Pay Off Mortgage Early or Invest?
Do you have any tips to offer first-time homebuyers? Are there any specific things to consider in the current housing market?
In a bid to drive more traffic to listing brokerage websites, consumers will soon see only limited listing data when they search for Mid-South homes on Zillow, Trulia, realtor.com and other third-party public portals.
In May, Inman News published a guest piece by Redfin CEO Glenn Kelman in which he said that when real estate brokers and MLSs provide information about their listings to big portals like Zillow, Trulia and realtor.com, they should be more like advertisements ? with just basic details, a price and a few photos ? and a linkback to the full listing on the listing broker?s website.
Now, at least one MLS has taken that advice. By the end of the month, Brentwood, Tennessee-based RealTracs Solutions says it will limit the information included in direct data feeds it sends to public portals. RealTracs, which has nearly 10,000 members, is also in negotiations with listing syndicator ListHub to limit third-party portals? display of listing data.
The changes include a four-photo limit; the elimination of several data fields; listing descriptions will be restricted to 150 characters; and public portals will be required to include a link to the listing detail page on the listing broker?s website.
As part of its reasoning behind the changes, RealTracs said consumers deserve a closer relationship with Realtors who provide the work product powering public portals, and brokerage websites can provide a more personal experience for consumers. The MLS also said brokerages should be allowed to manage advertising in ways advantageous to their companies.
New DNR Rules In Effect October 1
Well inspection requires automatic well water testing
As of October 1, 2014, the DNR will require any well driller or pump installer conducting a well inspection to also automatically test the well water for nitrates, bacteria and arsenic. This will apply to well inspections conducted on or after the effective date of October 1, 2014. (Note ? A well inspection is not required under the new DNR rules but, if an inspection is performed, the well water must be tested.)
This required testing may create issues for your transactions. If a well inspection is included, the water still must be tested for bacteria, nitrates and arsenic even if a well water testing contingency is not included in the offer. If the well water testing contingency does not include one or all three of the state required tests, the water must still be tested and your offer won?t address the steps to take if the results exceed safe levels. Lastly, the additional testing will likely increase the water testing fees, and may result in possible delays if it takes longer to test for the three required elements.
Currently, the DNR has not provided any specific information as to the changes on its website. We apologize for not providing you with this information until now, but the DNR just made public the final draft of the rule today, September 25, 2014. Therefore in the near future, the WRA will provide more information on these new requirements including drafting tips and further background information to assist you in explaining these changes to consumers.
If you have any questions, please contact Liesa Lehmann, Private Water Section Chief, Bureau of Drinking Water and Ground Water, Wisconsin Department of Natural Resources, at 608-267-7649.
Experts: Give Every Room a Purpose
Associated Press (09/14/14) Cook, Kim
Staging is important when it comes to putting a home up for sale, and even unused space should be decorated in an inviting way. Many homeowners have one room in the house that does not really have a job, but rooms that feel inhabited and clearly state their function enable buyers to see themselves living in the house. “The purpose of home staging is to draw the buyers into the house emotionally so they say, ‘Wow, we want to live here!'” says Melinda Bartling, a real estate agent and home stager in Overland Park, Kan. Buyers will question why a space looks that way and wonder what is wrong with it. Stagers should consider transforming a small room into a large closet or dressing room, or converting a bedroom into a creative workspace such as an art studio. Depending on the market, turning a bedroom into a home office also may pay off.