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John asked me, “What price range do I qualify for?”

Before home buyers hit the streets to shop for homes with their realtors, buyers are required to meet with a mortgage lender and get preapproved.  Answering John’s question should be a simple answer.  It’s not.

Take two people with the exact same income, assets and debts and they will differ on the amount they want to spend each month on housing.  One couple wants the home of their dreams and is willing to shop at the top of their price range to purchase their forever home.  They are comfortable living a meager life style now for the right home.  Compared to John, he wanted food with his meals, be able to afford furniture and be able to take vacations. 

If you want to stretch your budget take 45-50% of your total gross income and that’s the amount you have left to pay your mortgage and your monthly debts.  Keep in mind Uncle Sam takes money too. 

Planning to furnish your new home? Purchase at 36% of your gross monthly income to cover housing and your monthly debts. 

I worked with John to figure out a budget and the amount of monthly payment he felt he could afford.  After all, I an tell John what he qualifies for, but I’m not the one making his house payment. 

FYI: From my experience…the most conservative home buyers purchase under 25% of their gross income.

FHA announces increase to Upfront Mortgage Insurance Premium. Currently at 1.75%, as of 4/5 going up to 2.25%.  On a $200,000 loan this is a $1000 increase.  Purchase prior to April to save money.

European Central Bank announced it will help bail Greece out of their financial woes – this will take the steam out the recent support of our bond market which kept rates low the past few days.  If you are floating your interest rate, it’s time to consider locking in.

The bonds market favored a weak jobs report, which showed less people working than estimated.  This was just enough to send rates down a tick, when earlier this week everyone held our breath as rates appeared to be moving higher (rates will move higher, soon, but not this week).  Next week retail sales could shake up the market for a day or two.  I’ll keep you posted.

When will rates go up? Most likely in March or April as the Fed’s stop purchasing mortgage backed securities.  Just in time for the sleeping home buyers who decided to take a nap once the home buyer tax credit was extended.  If you know someone purchasing a home this Spring to take advantage of the $8,000 home buyer tax credit – wake them up! They could buya larger home and it would cost less per month if rates stay at their current levels.  Eric Rosengren of the Federal Reserve Bank of Boston has predicted rates could increase .75% in 2010. 

HOW BIG? – The US economy shrunk by 2.4% in 2009 to 14.5 trillion in size. China’s economy grew by +8.7% in 2009 to 4.9 trillion in size (source: Commerce Department).

THIS YEAR? – the US economy is projected to grow +2.7% in 2010. China’s economy is projected to grow +10% in 2010 (source: International Monetary Fund).