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The Homebuyer's Fair Affordability Analyzer

The purpose of this calculator is to allow you to determine the price of the house that you could afford to buy. Instructions are underneath the form.

1. Funds for Down Payment

savings gifts other closing %

2. Monthly Payment Capacity

monthly
rent
monthly
slack
tax
bracket
property
tax rate
insurance
cost
mortgage
rate
annual
income
550 150 25 1.5 0.5 7.375 35000

Directions

The first step is to figure out how much you have for a down payment. Type in the amount of savings that you will have available to use for a down payment and to cover closing costs. If your parents or someone else will provide a substantial gift to help you buy the house, include that money under gifts. If you have another source of funds (a loan from a retirement account, for example), include that money under other.

The % closing is an estimate of closing costs, including lender's points, as a percent of the loan amount. Keep the default value of 3 percent unless you have more accurate information. Closing costs vary by location. For example, in Maryland closing costs tend to be higher because of a stiff transfer tax on real estate.

Next, we analyze your budget for housing. You input your current monthly rent. Then, consider how much extra money per month you could spend on housing. This "slack" consists of money that you are putting into saving that you would be willing to switch over to housing, or money that you believe you would have by making realistic cutbacks in other expenditures.

The third input is your marginal tax bracket. It should be the sum of your marginal tax rate on Federal income tax and on state income tax. One complication is that if you take on a big mortgage, your taxable income may fall and this could reduce your marginal tax bracket. If your current income is only slightly above the level needed to put it into the highest tax bracket, you might want to use a lower tax bracket here to get a more realistic estimate.

Input the property tax rate for your jurisdiction. If you do not know this rate, type the value suggested in the table.

Input the cost you will pay for property insurance, as a percent of the house price. Again, you may just wish to type in the suggested value.

Next, input the mortgage rate. It probably is not a good idea to use the start rate on an ARM, because later on the rate probably will adjust upward, making this calculation unrealistic.

Finally, input your annual income. This is to determine whether you meet standard qualification ratio tests for lenders. Finally click on "compute" and then wait for the results.

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