The Financial Accumulative Effect of "The
Smart House Program"
Let's look at some of the benefits that can be derived from "The Smart House Program". Consider if we could generate a conservative $750 per month from the "addition". If we purchased a house with a $240,000 mortgage at a 5.0% fixed interest, our monthly payment would be $1,288/month with a 30 year mortgage. Add an extra $180/month for house insurance and property taxes, which most lenders add to the mortgage payment, the total house payment would be $1,468 per month. Most lenders would require a yearly gross household income of $61,000 to be able to afford a mortgage of this amount at a 35% debt to income ratio. However, if you subtract $750 from the $1,468 monthly housing cost, your total out of pocket expense would only be $718! This makes the mortgage not only more manageable to pay, but offers additional funding to pay bills, purchase additional items for the house, apply to savings and so forth.
A View To Debt Reduction
By using the above example, it is easy to see how the additional income generated by “The Smart House Program” can be used to help pay off debt. In perspective, over the life of a 30 year mortgage, if you could save $750 a month because of the additional income generated from this arrangement your total income, not including interest or income tax, would be $270,000! If you add 5% interest compounded monthly to this amount, your $270,000 savings would increase to a whopping $627,545!! Then add the tax savings in our previous example, and we can add another $330,000 (not including interest). What a great savings plan! In totality, this is worth over $958,000!!! Friend, this is not chicken feed and paints a realistic picture for debt reduction, investment, and a retirement savings program. Moreover, this does not even take into consideration the increase in property value that normally occurs over time. We are truly on our way to realistically becoming a millionaire without getting involved in dangerous investments.
Applying For A Mortgage
Buying a home starts with knowing how much you can afford. Three factors determine this. 1) Income 2) Debt level and 3) Downpayment ability. Lenders (as in banks, private mortgage companies, etc.) will base your ability to pay the monthly mortgage on a percentage of gross income minus monthly debt (credit card payments, car payments, loans, alimony, child support, etc.). Most lenders take 32% to 42% of your gross monthly income minus your monthly debt. Some private mortgage companies will go higher. For example, if you made $85,000 yearly, then $85,000 x 0.38 = $29,750. Divide this figure by 12 months/year = $2,479. From this, you need to subtract out monthly obligations. Additionally, most lenders will include the cost of property taxes and house insurance as part of the mortgage payment. Generally, this is about 14% of the mortgage amount. Therefore, with a $320,000 mortgage at a 5% fixed interest, our mortgage payment would equal approximately $1,718/month. If we include property taxes and insurance at $240.00 monthly ($1,718 x 0.14 = $240), our total monthly house payment equals $1,958.
Most lenders require a downpayment of 5% to 10% of the purchase price of the house (a number of lenders now require a 20% downpayment, however may be modified for first time homebuyers). Of course, you subtract out the amount of the downpayment you make. Looking at the mortgage calculator below, we can determine the
monthly payment our mortgage will cost dependant on the prevailing interest rates at the time. Based on a fixed rate of 5% as of this writing, an income of $85,000 would allow you to buy a home costing around $390,000, which includes the taxes and insurance amount on the mortgage.
I highly recommend that individuals go to at least three lending institutions, whether banks or private mortgage companies. Have them perform a pre-qualification for you (which almost all do for free), which is a lenders process of determining if a borrower is creditworthy and capable of making payments on a loan. At the same time you can find out what the lending institution is willing to offer you. Shop for a mortgage just as you would a car (only more so) since this may be the largest loan you will probably ever make.
Finally, a word on debit/credit cards. Although convenient, the indiscriminate use of credit cards can be dangerous and eventually lead the user into the bondage of unmanageable debt. Again, an example would best describe this. Let's say you borrowed $10,000 on credit at an 18% interest rate (common credit card interest rates range between 12% to 22%), your monthly interest payment alone would be around $150. Because it appears manageable, people continue to use credit cards indiscriminately. But you must understand that you are not paying off one single cent on the principle amount of $10,000! In other words, if all you paid was the $150/month minimum payment, you will pay $150/month for eternity! If you paid just an additional $50 monthly ($200 total) to help pay off the principle of $10,000, it would take you almost 8 years to resolve this debt without even using your credit card once! This is why credit debt can be dangerous and should only be used if it can be paid off monthly. The goal is that credit (or finances in general) should be your servant, not your master.