However, since interest rates are so low right now you may well be able to afford up to the $500,000 but make sure you are comfortable with the full payment including taxes, insurance.
You can also pick up a major bargain in the form of a foreclosure, short sale (pre foreclosure). See http://www.realtytrac.com/gateway_co.asp?accnt=168899&pa as this is the largest and best database of foreclosure property listings in the USA.
After all, you may be able to get a $500,000 property for $300,000 or so, good luck on your purchase!!
Generally speaking, your monthly "PITI" (Principal, Interest, Taxes and Insurance) should be 28% or less of your gross monthly income to qualify. What is 28% of your combined gross monthly income? Compare that to your complete proposed housing payment. If the housing payment is lower than 28% of your gross monthly income, perfect! If higher, then either shop for a lower priced home, or a lower interest rate to lower the payment.......or buy a lower interest rate by paying points.
I also want to add, that your total debt-to-income ratio should be generally under 40% (or 43 to 44% if a government loan.) That would be percentaging your total monthly gross income total of ALL of your monthly credit obligations that show on your credit report, (using the minimum payments due) and your new housing payment combined.
So even if your housing payment is under 28%, but your credit cards, car payments, student loans, etc, minimum payments bring your monthly obligations higher that the 40 to 45% allowed, that could turn down a mortgage application. I used to advice my mortgage clients not to open any new credit or buy any new cars until after the mortgage closes.
Good luck to you!
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Here's the truth -- the specifics of every individual situation make it imperative that a buyer sit with a well-qualified lender who will go through all the pertinent information with you, assess your situation, and advise you on the most appropriate programs, Like "doctor", "attorney", "cpa", the title "licensed mortgage loan originator" now refers to a trained, certified professional who goes through a beast of a screening process in order to be allowed by the feds/state to originate residential mortgages. It's imperative that you sit with some one qualified rather than try to figure it out all yourself.
Because your downpayment is less than 20%, I would nudge you toward a larger mortgage banker instead of a regular bank. As a rule, a banker will have more education in his/her pocket and more in-house programs available to service your "non-generic" situation. A broker will not be able to shift gears seamlessly mid-process if necessary. (Sorry to all you brokers out there, but it's true and you know it. :))
Obviously I work for such a lender. I'm sure most of the nice folks who've answered your question do as well. I'm sure that all of us would be happy to consult with you. Perhaps you should speak to a few people and see how you feel.
If you want to reach out to me, find me here:
If not, I'm not mad at ya!!! I wish you the very best of luck in your search.
I would be more than happy to spend a few minutes chatting via email or phone to help. Feel free to visit my web reference below to view my testimonials.
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Here are a few ideas I share with first time buyers I work with.
1. Your upper limit is not a requirement, only a cap. Buy where you are comfortable.
2. Due to tax write offs, your mortgage payment will be somewhat subsidized. If you are comfortable now with a rent payment of $X you can afford a higher mortgage payment and be in a similar cash flow position.
3. Due to the tax write off, you may want to adjust your withholdings at your employers to free up some of your cash. Talk to your tax preparer and HR person to decide by how much.
4. Buying & selling costs money, buy a home you can stay in longer and you'll be money ahead in the long run. If two bedroom condo meets your needs now, but you anticipate needing a 3 or 4 bedroom place in 5 years, buy the larger home now and skip the condo.
5. Appreciation is the historic rule of home ownership. We have been in a historically unusual market the past 4-5 years. Once things settle down, I anticipate some normal appreciation. If a $400,000 home goes up 5% that's $20,000. If a $600,000 home goes up 5% that's $30,000 or $10,000 more. These numbers are just examples, but buying higher compounds your upside when/if appreciation does return.
6. What are your plans/expectations for the future? Will you be a 2 income family in a couple years? Will one of you see a dramatic uptick in income due to promotions or will one stay home with kids?
There are arguments to be made in buying both at the upper end and more moderate, but ultimately the decision isn't your lenders or agents, it's one you will have to live with. Consider as many factors as you can and make the best decision for you.