Down Payment: What Can I Afford?
Most of the time buyers look at their cash on hand as their only source for a down payment. This is not always the case as there are ways to purchase a home with your 401K or IRA, you can use a gift from family members who are eager to get you in to a new home, or there are even payment assistance charities that make home buying more affordable. If you are selling your home or an investment property, the equity you have accrued can be applied toward your down payment. In the case of an investment property, you can use a 1031 exchange to have your taxes deferred and use the profits to put toward a new property. These are all great options, but they are not your only option. Some lenders allow lower down payments and 100% financing options that may be right for you, but you can typically bank on anywhere from at least 3 to 20% down. See my “Tips for Accumulating a Down Payment” section.
Your down payment, of course, is a big factor in determining what size monthly payment you can afford. In determining this, you need to take into account your current tangible expenses such as your car payment, utility bill, credit card payments etc. You also need to take into account your intangible expenses to consider such as what percentage of your monthly budget to you spend dining out, buying groceries or spending on fuel. These all play a factor in determining how much you want to put down and what you can afford month to month. This is why you want to make sure you are pre-qualified for a mortgage before you go out searching for a home. Contact me and I can be sure to point you in the right direction.
