Financing

Basics

Deciding on what house you are able to purchase is highly dependant on your ability to secure the necessary financing in order to afford the home that you require.  Please consider this information as general information only and to consult a real estate and/or tax advisor.

Your Credit History

Your credit history is the largest factor a mortgage lender will take into account in determining whether or not you are qualified to receive a loan from their institution.  Therefore it is important to understand and take proper steps to ensure that this will not be a negative against your ability to borrow money to purchase your home.

Affordability

How much of a home can you afford?  This is the second most important factor that a lender will analyze.  A family with a larger income base and lower debt ratio will have a better chance at a specific home over a person with a lower income base and/or higher debt ratio.

PITI

PITI (principal, interest, taxes, and insurance) refers to one's total monthly mortgage payment.  Your maximum PITI payment loan companies allow you to have is determine by calculating your gross monthly income x 28%.  Though, institutions will also look at your long term debt and factor that your mortgage payment plus monthly debt obligations cannot exceed 36% of your gross monthly income.

Tax Advantages

Taxpayer Relief Act of 1997.  Starting in 1997, this bill is very significant for both current and first-time homebuyers.  Before the change, homeowners when they moved had to buy a more expensive home each time to avoid paying capital gains when the price of their original home appreciated.  The one-time exclusion of $125k was only allowed after age 55.  The TRA 97 now allows more flexibility for homeowners buying and selling a home.

A single homeowner can now exclude home sale capital gains up to $250k ($500k for married filing jointly).  This is also no longer a one-time exclusion.  If you have gains over the exclusion, this amounts are now only taxed at long term capital gain rates which cap at 20% as opposed to the previous 28%.  There are also additional rules for these exclusions so it is very important to visit the IRS website for more information and/or consult a tax advisor.

Calculators 

Java Loan Calculator

<Click Here> to estimate the monthly payments associated with the size of a loan, interest, and number of payments.

Need More Info?

Contact Charles Davis at Arkansas National Bank.  cdavis@anbfinancial.com

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