First Time Home Buyer, Buy Home in Florida, Georgia & Alabama

For most of us, buying a home is an expensive proposition, which, at first glance, appears to be far costlier than renting. However, a deeper insight into the tax deductibility opportunity of mortgage expenses shows that owning a home is more practical in the end. This is because the Government of the United States makes the equivalent of about a third of home owner’s mortgage payments through tax deductibility.

Now that you have made up your mind to buy a home, you have to decide what you can afford. This is where Castle Mortgage Group offers unmatched help. Our services are all-inclusive and ensure that you are fully equipped before making your move towards home ownership.

First, discuss your home loan or mortgage requirements with a qualified loan agent.

Some special category home loans such as VA or First Time homebuyer loans offer greater advantages to homebuyers. Find out whether you are eligible for either of these. If not, you will apply for a conventional home loan, which are more general. The following suggestions are made in regards to conventional home loans.

Purchase price
Purchase price is the total amount of money that you have to pay for the home you are buying. Purchase price includes down payment plus your installments (with interest), and other variable payments which pertains to government and local taxes.

In most cases, the purchase price that you will be able to afford depends on 3 main factors:
§          Your income and how much other debt you owe. This will determine how large a payment you can afford.
§          How much you have for a down payment and for closing costs.
§          Your credit history

Loan terminology

The following are the three most important terms that you will come across most often:
§          Loan-to-Value (or LTV) - LTV refers to the loan amount as a percentage of the purchase price or appraised value and is calculated on a ‘whichever is less’ basis. Suppose you are buying a $150,000 home with $15,000 down payment. In this case, you have a 90% LTV. Note that loans over 80% LTV require either PMI (Private Mortgage Insurance) or a combination of a 1st and 2nd mortgage, which avoids the PMI.

§         Housing Ratio-housing ratio is calculated by summing up total monthly housing expense (principal, interest, tax, insurance, and PMI and homeowners dues (condominiums if applicable) and dividing the total by gross monthly income. Homeowners should be very clear that Gross Income refers to income before deductions. If you are in a W2 job, the Gross income is easy to determine. However, if you are self-employed, the gross income is what you bring from the Schedule C onto line 12 of your 1040. In addition, a 2-year history of consistent self-employment income is generally necessary for the self-employed.

§        Debt Ratio-debt ratio is the sum of your monthly housing expenses, your monthly payments of your installment, and the revolving debts. All expenses incurred through child support, alimony, or separation maintenance are included in Debt Ratio.

Note that any debt with fewer than 10 months to go does not count. In addition, such debts incurred through purchases where payments can be deferred after a year does not count as long as there are 12 months to go without payments. The same applies for student loans.

Your income and credit determine the size of the home loan or mortgage loan for which you qualify. Cash is usually needed for three things:

§          Down Payment- down payment is the amount that you have to pay at the time of purchase. Note that the amount which you have to make as down payment depends on a number of factors such as your income, debts, and more.
§          Closing Costs- Closing costs constitute a major share of the total cost incurred and cannot be neglected or left unaccounted for as it may lead to severe financial crisis. Ideally, as a homebuyer, you need to cover all one time or "non-recurring" closing costs, "recurring" closing costs: prepaid interest, insurance, impounds if there is PMI and potential prorated property tax.
§          Reserves- Reserves refer to what you have in your bank. You should be able to show at least $10.00 in your bank after the purchase. We account for 2 months (PITI) of any homebuyer’s total monthly housing expenses in reserve. This is to make sure that you get together all of the cash necessary to close.

Once your eligibility has been determined and we are clear about the size of the loan you will be able to qualify for and where the money is coming from we will determine how much of a home you can afford.