Owning a home is the American dream and it should not be denied to anyone who wants to be part of this dream.  However, owning versus renting comes with a certain level of financial responsibility that rewards the owner with one of the greatest investments still not taken by the IRS. 

One of the items a lender looks at is debt to income ratio.  In other words, what is your monthly revolving debt versus how much money (gross) you bring home each month?  If your debt to income ratio is too high, you are at risk for not performing on a loan committment.  If your ratio is low, you are a good candidate for a mortgage.  Below are some monthly budget items to look at before a successful loan qualification can take place.

  1. PITI ( Principal, Interest, Taxes, Insurance): These are the four majors of any home owner's monthly budget.  A lender or a good Realtor can give you a guestimate as to what these are based on what your budget is in this area.
  2. Utility Bills: Here in Iowa, air conditioning is not at a premium whereas in Texas it is.  However, home heating bills can be a real eye opener if you are not prepared with your budget.  Consider going on a "monthly budget plan" offered by most utility companies.  They will take the averages over the last 12 months of the property and charge you a monthly "average" so you can budget for this.
  3. Gasoline: How long is your commute?  Do both of you drive?  What is the price of gas these days?  All these items need to be considered when drawing up the monthly line-item budget.
  4. Revolving credit card accounts: Keep credit card debt down to a minimum and try to pay down as much of this revolving debt as possible months before applying for a loan.  This will bring a smile to your lender's face.
  5. Other monthly debt: Do you have one or two monthly car payments, cell phone bills, etc...  Make sure you have written down ALL debt on your planning sheet when considering your debt to income ratio.
  6. Savings/Retirement/401K:  Let's say your savings account is nill and you have little money in your checking account, but you have 200K in your 401K plan.  Based on this scenario alone, you may be able to qualify for a prime interest rate because you have these funds available.

Most seller's can provide a monthly average for utility bills so you can get a good snapshot of what you will be faced with in regards to utility bills.  Keep little items in mind like watering your lawn in the summer.  Can you afford to have a green lawn?  Can you improve energy efficiency in this home by wrapping your furnace with insulation, window/door insulation in the winter, closing off certain sections of the house that don't need air/heat. 

For more information on financial obligations please give me a call at 319-329-5988 or email Christopher@skogman.com