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How Much Can You Afford?

Introduction An old rule of thumb said that you could afford to buy a house that cost between one and a half and two and a half times your annual salary. In reality, there's a lot more to take into consideration. You'll want to know not only how much of a mortgage you qualify for, but also how much you can afford to spend on a home. In order to know how much you can truly afford, you need to take an honest look at your lifestyle and your standard of living, as well as your income and what you choose to spend it on. Getting to the bottom line If you have unlimited resources, you can afford to buy whatever home your heart desires. For most of us, though, that's not the case. Unless you can afford to buy a house outright, you'll probably need to get a mortgage to help you pay for it. So, determining how much house you can afford is often a case of determining how much of a mortgage you can afford. Start with some simple math: Take your monthly income and subtract all of your non-ho ...

Homeownership

What is it? If you're like most consumers, homeownership involves the largest financial transaction you'll participate in during your lifetime. As such, it's no wonder that the process of buying or selling a home can be so stressful, frustrating, and, at times, totally confusing. If you want to ensure that you make sound financial decisions and survive the process with your sanity intact, you should first educate yourself about real estate transactions and then engage in careful planning. Your first step should be to ask yourself: "Do I really want to own a home?" Isn't it always smarter to buy rather than rent? Many people feel that renting is like throwing your money away, and that you should buy a house as soon as you can. However, this isn't necessarily true. Although there can be many benefits to homeownership, many people find renting more advantageous than buying. Which is better for you? To find out, you'll need to evaluate many nonfinancial and financial fac ...

Tax Benefits of Home Ownership

In tax lingo, your principal residence is the place where you legally reside. It's typically the place where you spend most of your time, but several other factors are also relevant in determining your principal residence. Many of the tax benefits associated with home ownership apply mainly to your principal residence-- different rules apply to second homes and investment properties. Here's what you need to know to make owning a home really pay off at tax time. Deducting mortgage interest One of the most important tax benefits that comes with owning a home is the fact that you may be able to deduct any mortgage interest that you pay. If you itemize deductions on Schedule A of your federal income tax return, you can generally deduct the interest that you pay on debt resulting from a loan used to buy, build, or improve your home, provided that the loan is secured by your home. In tax terms, this is referred to as "home acquisition debt." You're able to deduct home acquisition debt o ...

Buying a Home

There's no doubt about it--owning a home is an exciting prospect. After all, you've always dreamed of having a place that you could truly call your own. But buying a home can be stressful, especially when you're buying one for the first time. Fortunately, knowing what to expect can make it a lot easier.   How much can you afford? According to a general rule of thumb, you can afford a house that costs two and a half times your annual salary. But determining how much you can afford to spend on a house is not quite so simple. Since most people finance their home purchases, buying a house usually means getting a mortgage. So, the amount you can afford to spend on a house is often tied to figuring out how large a mortgage you can afford. To figure this out, you'll need to take into account your gross monthly income, housing expenses, and any long-term debt. There are many real estate and personal finance websites on the Internet that can help you with the calculations. Should you u ...

Should You Pay Off Your Mortgage or Invest?

Owning a home outright is a dream that many Americans share. Having a mortgage can be a huge burden, and paying it off may be the first item on your financial to-do list. But competing with the desire to own your home free and clear is your need to invest for retirement, your child's college education, or some other goal. Putting extra cash toward one of these goals may mean sacrificing another. So how do you choose? Evaluating the opportunity cost Deciding between prepaying your mortgage and investing your extra cash isn't easy, because each option has advantages and disadvantages. But you can start by weighing what you'll gain financially by choosing one option against what you'll give up. In economic terms, this is known as evaluating the opportunity cost. Here's an example. Let's assume that you have a $300,000 balance and 20 years remaining on your 30-year mortgage, and you're paying 6.25% interest. If you were to put an extra $400 toward your mortgage each month, you ...

Survey: Mortgage Borrowers Want Both Technology and In-Person Services

A majority of Americans (60 percent) agree that while they use online resources for research, they prefer to apply for a mortgage in person, according to a new survey from the American Bankers Association. Seventeen percent said they would prefer to apply for a mortgage online, while 23 percent were unsure. “Banks invest billions of dollars to offer their customers the latest technology,” said Bob Davis, ABA executive vice president of mortgage markets, financial management and public policy. “But at the end of the day, nothing compares to sitting across the table, face-to-face with a banker when you’re making the single most important investment of your life.”  Consumers also indicated, though, that mobile or online services are important when it comes to obtaining a mortgage or making mortgage payments. Sixty-one percent of respondents consider mobile and online services very important or somewhat important, while 23 percent said they were not important.&nb ...

Refinancing and Home Equity Loans: Tax Considerations

What are the tax considerations associated with refinancing and home equity loans? Generally, interest paid on loans to acquire an existing home or to construct a new home is tax deductible ,with certain limitations.  In addition, interest paid on refinanced mortgages is deductible (also subject to certain limitations). Can you deduct interest paid on refinanced mortgages? If you refinance the current principal balance owed on a mortgage secured by your primary or secondary residence (a no-cash-out refinance), interest on the refinanced loan will be deductible to the same extent as was the interest on the old loan. If, however, the refinanced loan is for more than you owed on the old loan (a cash-out refinance), deductibility of interest on the amount of the loan that exceeds the principal balance of the old loan is determined as follows:  If you use the excess amount to buy, build, or substantially improve your first or second residence, the excess amount is treated ...

Millennials Are Ready to Buy: Let’s help them Achieve Home Ownership!

By Dawn Laumann, First Bank Home Loan Consultant p: 314-749-4898 e: Dawn.Laumann@fbol.com Do you have a son, daughter, niece, or nephew that makes up the millennial generation (ages 18-34)? According to the U.S. Census Bureau, millennials make up the largest generation in our nation’s history; shockingly, even larger than baby boomers. As this group continues to secure gainful employment and decides it’s time to enter the home ownership stage of life, their buying power will be significant and impactful. Research suggests that millennials have chosen to live at home with parents longer than previous generations. Many factors have played into this scenario, including the post-recession employment rate, student-debt ratio, lower wages, and a reduced emphasis on reaching major adulthood milestones, like marriage and home ownership. However, as economic conditions continue to improve and change, most millennials are anticipating a bright future with homeownership just two to five years awa ...

Education Plays a Role in the Real Estate Market

It’s no secret the importance education is to families, the economy and to communities as a whole. Education also impacts the real estate market. Although many factors, including square footage, number of bedrooms, and garage size, all impact homebuyers’ decisions, there are also other contributing factors. School quality and rating, along with the academic schedule, is just as important to many buyers as is the size, price and location of the home. In fact, one out of every three homebuyers would buy a smaller house than desired, just to be in a choice school district. “Since home and resale values are both impacted by school quality, homebuyers with or without children are going to seek homes in the best school districts,” said Morgan Jerabek, a home loan consultant at First Bank. Schools may also determine when sellers list their home. “Savvy sellers  ...

Get Ready for Summer with Outdoor Home Improvements

The warmer temperatures and the smell of backyard grills are the tell-tale signs that summer has arrived in St. Louis. For many, this is a welcomed time of the year; however, if your backyard isn’t quite ready for guests, the fun may be delayed. Start now and still have time to enjoy this summer. We’re all aware that home improvements help increase a home’s value. Did you also know that outdoor enhancements can also help to increase the home’s value? Kory Kunze, First Bank Product Manager said, "Using a home equity line of credit can be a cost effective way to fund home enhancements, with rates lower than credit cards.  Borrowers can take advantage of attractive introductory rates if they plan on paying the loan off in a short amount of time.”  Outdoor Living Buyers love decks because they add outdoor living space. Excellent for entertaining, backyard decks averaged an approximate 55% return on investment (ROI). Consider the maintenance of the materia ...

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All First Bank blog information and content is strictly informational. It is not intended to be specific investment, tax, or legal advice. If you need detailed financial, investment, or tax advice, please contact a First Bank qualified professional. Please note, First Bank occasionally shares third-party content we find to be relevant and helpful to our audiences.