Helping your clients determine how much home they can really afford can be tricky. These days, the financial factors include much more than the loan amount a consumer pre-qualifies for.   Check out these 5 keys:

1. Monthly Payment: Conventional wisdom tells us that your mortgage payment should be no more than 28% of your gross monthly income. This means that if you make $50,000 a year, the maximum amount you would safely want to pay each month is $1,166. The National Association of Realtors also gives this simple equation for renters to use to figure out how much they can afford. Multiply your rent by 1.32 and that will equal your affordable mortgage payment

2. Savings: You will need money to bring to the table when you buy a house.   This is the main issue that holds back many of the new home owners.   Closing fees  consist of Discount Fees, Processing Fees, Title Insurance Fees and Third Party Closing Fees.   This can be up to 10% of the purchase depending on your discount fees.   These fees can be supplemented by the seller.

3. Downpayment: This is savings in addition to your emergency fund. And a downpayment can be as little as 3.5% with an FHA loan or up to  20 percent for a conventional loan.    This is in addition to the closing cost and can NOT be helped by the seller.

4. Emergency Fund: Before you even begin to think about buying a house or moving, you must have emergency funds in the bank. This means you need to add up your living expenses for a month and have enough for several months. This include all the necessities and things that must be paid (rent or mortgage, car payments, insurance, food, gas money, electric, phone, tuition, day care, etc). You must have this in case you or your spouse loses your job, gets sick, or some other disaster hits your family.

5. Lifestyle and Extraneous Factors: Everyone has different wants and needs. You may be fine spending a little more for the house of your dreams in exchange for taking fewer vacations. Others abhor the statement, “house rich, cash poor,” and instead would rather have funds for shopping, dining out, and travel.

I have worked with talked to many homeowners that have acquired a Loan Modification from their Lenders.  It has helped many homeowners stay in their houses but has also given false hope to others that only failed again within the next year.  Last week a House Financial Services Subcommittee voted to eliminate two programs designed to mitigate the impact of the housing meltdown.

Republicans on the Committee voted unanimously to shut down the Emergency Homeowner’s Loan Program (EHLP) and FHA’s Short-Refinance Option.  EHLP is not scheduled to go into operation until next month and the Short-Refi program got off to a slow start and has, as yet assisted only a few homeowners but also has cost $0 in federal monies. 

The next two housing recovery efforts on the chopping block: HAMP and the Neighborhood Stabilization Program. With the Committee scheduled to vote Wednesday on the fate of both programs, supporters are beginning to fight back.

While HAMP has been plagued with problems, at last count it had moved 600,000 borrowers into permanent loan modifications while another 126,000 are in the required three month trial modification period.  The Times said the $6 billion Congress appropriated for the program over the last two fiscal years was simply not enough, it has all been obligated and “House Republicans want to eliminate a third round of financing – $1 billion – promised in the financial reform law.”

Rates are still low and look to refinance to a permanent Fixed Loan.  This will give you the option of a low rate for the next 30 years.  Check out your payment at XpressMortgageQuote.