| How much house can I buy? Part II |
Last week we talked about how lenders qualify you to determine how much you can spend for your house payment. Once you know that amount, the next step is to find out how much mortgage that amount will support. That payment needs to cover principal, interest, real estate taxes, and howeowners' insurance--known as PITI. In addition, if your down payment is less than 20% of the purchase price, you will be required to carry private mortgage insurance (PMI). Taxes and insurance will run about 15-18 percent of your total payment. Subtract that from your payment amount--and the rest will go to principal and interest. At 7% interest for a 30-year fixed rate loan, your principal and interest payment would be $7.11 for each $1,000 borrowed. At 6.5%, for a 1-year adjustable-rate loan, that payment would be $6.29. You can see that the loan you choose will determine how much house you can buy.
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