The Financial Accumulative Effect of "The
Smart House Program"
Let us look at some of the benefits that can be derived from "The Smart House Program". Consider if we could generate a conservative $600 per month from the "addition". If we purchased a house with a $200,000 mortgage at a 6.0% fixed interest, our monthly payment would be $1,200/month with a 30 year mortgage. Add an extra $150/month for house insurance and property taxes and our total house payment would be $1,350 per month. Most lenders would require a yearly gross household
income of $45,000 to be able to afford a mortgage of this amount. However, if you subtract $600 from the $1,350 monthly housing cost, your total out of pocket expense would only be $750! This makes the mortgage not only more manageable to pay, but offers additional funding to pay extra bills, savings, etc.
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 $600 a month because of the additional income generated from this arrangement, your total savings would be $216,000! If we were to add the tax deductions in our previous example for a 30 year period, and we can add another $53,190. What a great savings plan! This is worth nearly $270,000!!! 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 are 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 35% to 42% of your gross income minus your monthly debt. Some private mortgage companies go as high as 50%. For example, if you made $70,000 yearly, then $70,000 x 0.38 = $26,600. Divide this figure by 12 months/year = $2,216. 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 $200,000 mortgage at a 6% fixed interest, our mortgage payment would equal approximately $1,200/month. If we include
property taxes and insurance at $168.00 monthly ($1,200 x 0.14), our total monthly house payment equals $1,368.
Most lenders require a downpayment of 5% to 10% of the purchase price of the house (a number of lenders now offering “no money” down programs, especially for first time homebuyers). If we look at the 30 year mortgage payment calculator below and base the percentage
percentage amount on a fixed rate of 6.0% as of this writing, an income of $70,000 would allow us to buy a home costing around $340,000 (assuming we do not have any long term debt obligations).
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 most do for free), which is a lenders process of finding 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 since this may be the largest loan you will 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.