Can I afford a new home in Minnesota? Worksheet for First Time Home Buyers in Minneapolis, St Paul and Surrounding Suburbs

The following information is beneficial to first time home buyers in Minneapolis, St Paul and surrounding suburbs.

A general rule of thumb is that a home costs about 2.5 times your yearly income.

General Costs
Some of the factors to consider are how much you need for housing related bills (heat, water, etc), down payment, earnest money deposit and closing costs.

Down Payment
When purchasing real estate in Minneapolis, St Paul and surrounding suburbs, you can expect that you'll need a minimum of 3% of the total loan amount for your down payment. Some special financing programs can minimize the 3%.

Earnest Money
Earnest money, is money you put down at the time you write the offer on the property. That money is deposited into an escrow account where it is held by a neutral third party until the property is closed. At that time, the earnest money is then given to the selling party and goes toward the purchase price of the property.

Qualifying for a Loan vs Loan Approval
Before you begin looking for a home, meet with a lender to determine how much home you can qualify for. This is the pre-qualification stage. You are not bound to a lender just because they pre-qualified you and you should not sign any paperwork what would bind you to a particular lender at this stage. Loan approval occurs after and offer has been accepted.

Calculating Amounts and Determining Affordability
A mortgage broker will likely discuss the following with you and you can use the below worksheet

Estimating your maximum home payment:
Gross monthly income___________
Multiply by .28 for a conventional loan___________
or .29 for an FHA loan___________

This number is your maximum monthly home payment.

Estimate your maximum long-term debt payment allowed by a lender:
Gross Monthly Income___________
Multiply by .36 for a conventional loan____________
or .41 for an FHA loan___________

This number is the maximum total monthly debt payment a lender will allow, including housing.

Calculating Household Income & Expenses

Step 1. Your Monthly Income
ADD THE FOLLOWING:

Household income after deductions____________
Interest and dividends____________
Other income____________
Total monthly income___________

Step 2. Monthly Non-Housing Expenses
ADD THE FOLLOWING

Food and supplies____________
Clothing____________
Medical bills including insurance premiums, life insurance and disability____________
Auto Expenses (loan, insurance, gas, repair, parking, license)____________
Education Expenses (loans, current classes, books)____________
Recreation____________
Credit Cards____________
Child support____________
Alimony____________
Telephone____________
Personal expenses____________
Savings and investments____________
Income taxes____________
Total non-housing related expenses___________

Step 3. Monthly Housing Expenses
ESTIMATE AND ADD THE FOLLOWING:

Mortgage loan payment (principal and interest)____________
Property taxes (check with me for a rough estimate based on area)____________
Mortgage insurance (estimate 3.5% of the loan amount for roughly
seven years; after you have 20% equity in your home, lenders must
allow you to drop mortgage insurance)____________
Homeowners insurance____________
Utilities (heat, water, electricity, gas, garbage)____________
Maintenance and repairs (usually 1% of the value of the home annually)____________
Other (condominium dues or assessments)____________
Estimate of total monthly housing expenses____________

Add the total in STEP 2 to the total in Step 3 to see your estimated expenses. Compare this to your income in Step 1. If your estimated expenses are higher than your income, you have some adjustments to make. You either need to lower your expenses or lower your expectations of what you can afford in a home.

Feel free to email me if you would like a paper copy of this spreadsheet.

*Spreadsheet developed in part with the Minnesota Association of Realtors.