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Just like the title says, we are in the beginning steps of looking for our first house. The number #1 thing is trying to figure out how much we would be able to spend on a house in order to be able to look.
I don't want to sit down with a lender or bank just yet, I just want to give myself some basic knowledge about mortgages and if our eyes are bigger than our wallets.
With that being said, is there anywhere we can get a step-by-step on what we need to consider when looking for a house & calculating our monthly payment aside from the purchase price? From the little we do know, we will be doing an FHA loan (or something along those lines). I am wondering how one is able to determine the property tax rate for the home and what factors determine this rate.
If it makes any difference, the area we are in is Northern Virginia, Fairfax.
Thank you for looking and for the help
Last edited by FireDog40; 05-12-2012 at 07:10 AM..
Youre doing the right thing by planning ahead, but I would go ahead and talk to a lender, perhaps a local credit union? They can give you a primer on local customary fees & expenses, and even pull your credit to make sure there isn't incorrect info on your reports. A little strategy can go a long way towards making the approval easier to get, some credit issues are counterintuitive, (closing a credit card might lower your score), a lender can help you avoid those kinds of things.
Often times property taxes are done at the local level. So you can do a Google search for the County you live in and find the property tax rate. In the case of Fairfax, it's 1.075
Generally these are listed as as the rate per $100 of assessed value. So for example, at the FFX Co. rate of 1.075, and you want a $400,000 house, your yearly property taxes would be $4,300.
These are usually paid twice a year, but collected into an escrow account as part of your monthly payment to your lender. So expect an extra $358.33 (4300 / 12) to be added on to your monthly amount.
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As far as total payments, you generally look for what is called PITI - Principal, Interest, Taxes, Insurance.
So you can use an online mortgage calculator to figure out the first two. Just enter in the loan amount and the interest rate and the term (e.g. 30 years).
Then if there's any mortgage insurance you can add that on top too depending on the calculator. For FHA, if you put < 5% down payment, it's 1.25%. More than 5% and it's 1.2% (until you get to 20% equity). These are for loans below 625,000. Higher rates if it's above that amount.
So to complete the example, let's say you take out a $400,000 loan at a 4.2% interest rate, having put 3% down with an FHA loan. So the purchase price was $412,400.
Your monthly rates:
Principal + Interest - $1,956
Taxes - $358
Insurance - $50 (estimate)
FHA MI - $417 (!)
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Total - $2,781
Now, you only have to pay that FHA Mortgage Insurance for 5 years (or get up to 22% equity, but unless you start making serious extra payment, you'll hit 5 years first; of course this can all differ if you put 10% down let's say)
So after 5 years you're only paying $2,364 a month total.
Of course, you may have an HOA due as well you have to account for. Factor in anywhere from $50 up to $200 for newer townhomes with lots of services (internet, TV) already included.
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Once you figure out how much you are able to put down and what your probable interest rate would be, that affects most of the other things that can help determine the loan amount you can take out, and therefore house prices you can look for.
Last edited by snowdenscold; 05-12-2012 at 09:36 AM..
I didnt realize the FHA MI would be so high. The only way to lower that amount would be to go to a more conventional 20% down?
Yeah, it used to be a lot lower (I think around 50 basis points for one of the options, but I'm not sure), but I guess they wanted to keep their insurance fund solvent or something, haha.
You can get a conventional loan with less than 20% down, but would pay PMI. These non-FHA PMI rates used to be higher than FHA, but since the big FHA increases, I'm not really sure where they fall now.
They depend on what you put down (0-3, 3-5, 5-10, 10-20). I saw one site that said the PMI rates for between 5% and 10% down were only 0.78 - quite a bit lower than FHA, so I am not sure if those are still accurate. Dropping from $417 to $260 a month would be nice, though.
Just like the title says, we are in the beginning steps of looking for our first house. The number #1 thing is trying to figure out how much we would be able to spend on a house in order to be able to look.
I don't want to sit down with a lender or bank just yet, I just want to give myself some basic knowledge about mortgages and if our eyes are bigger than our wallets.
With that being said, is there anywhere we can get a step-by-step on what we need to consider when looking for a house & calculating our monthly payment aside from the purchase price? From the little we do know, we will be doing an FHA loan (or something along those lines). I am wondering how one is able to determine the property tax rate for the home and what factors determine this rate.
If it makes any difference, the area we are in is Northern Virginia, Fairfax.
Thank you for looking and for the help
You need to consider your debt to income. Easiest way is to figure out all of your monthly payment debts (including credit card payments) and then divide that by total gross income for the month. This would give you a preliminary DTI to see where you stand for most lenders.
Also, i know home insurance and taxes play into this, and PMI depending on the loan..but that could be handled by a loan officer.
In my case- my loan officer pulled my credit, figured up my debt and income, then i call her with a home price/ taxes and a roundabout on insurance, she works up what the monthly payment would be, and then tells me what i need other things to be accordingly( i refinanced my car based off figures etc).
Note that the property tax rate is not based on the sales price of the house but on the ASSESSED value - and often on a fraction/percentage of that. i.e. in our county, the tax rate is multiplied by .25 of the assessed value. I know in our previous state it was the tax rate multiplied by .85 assessed value. That information is generally found in the government section of the town/county or often in a listing at the state level.
FHA does have a loan product that does not require a down payment (FHA plus). You should seek the assistance of a lender to help explain the mortgage process and the different loan programs available. The property tax is available on the website of whatever city/county you are looking to buy...there will be a link for real estate assessment or something to that effect.
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