Knowing how much you can afford, will ensure that home ownership will fit your budget.

1. Knowing how much you can afford

Typically, as a rule of thumb, how much you can afford is a home priced two to three times your gross income. If you earn $100,000, typically you can afford a home between $200,000 and $300,000.

To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of home ownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. When considering how much you can afford - factor in your down payment

How much money do you have for a down payment? The higher your down payment, the lower your monthly payments will be. If you put down at least 20% of the home's cost, you may not have to get private mortgage insurance, which costs hundreds each month. That increases how much you can afford.

The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher you’re monthly home paymentwhich directly impacts how much you can afford.

3. Consider your overall debt

Lenders generally follow the 28/41 rule in knowing how much you can afford.  Your monthly home payment covers your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.

Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly home payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in this example.

4. Use your rent as guide to knowing how much you can afford

The tax benefits of home ownership generally allow you to afford a home payment—including taxes and insurance—of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of how much you can afford.

Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a home payment of $2,000 monthly after factoring in the tax benefits of home ownership.

However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calculation instead.

Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

Home Sellers: Renovations Do’s and Don’ts

You’ve seen those depressingly cheery home-themed TV shows: a couple needs to sell their house, they have an outdated kitchen, and a designer comes in and convinces them to renovate the kitchen into a stainless-steel-clad shrine to culinary greatness—for tens of thousands of dollars. In an ideal real estate market, that would add value, but in today’s market, expensive renovations for home sellers, for the most part, aren’t worth it. In general, renovations will cost more than home sellers will recoup when they sell; renovations by home sellers done in 2010 will only recoup 60% of their cost when the house is sold, according to Remodeling magazine’s 2010 Remodeling Cost vs. Value survey.

Two areas that home sellers are often pressured to renovate are the kitchen and bathroom.

Kitchen
-Don’t put in expensive professional-grade cook’s appliances. You may choose a $10,000 Wolf stove, but the potential buyer might be a take-out addict.

-Do, however, service the appliances you have, so that they work perfectly. If you have seriously outdated appliances that can be replaced for $1,000 or less (like swapping a dingy old fridge for a new one), that’s a good idea. Similarly, if there are appliances that you lack, which most buyers consider essential, it makes sense to buy one (like a dishwasher).

-Don’t replace your cabinetry entirely—even if it’s a little outdated. It’s just too subjective. You might think sleek, white Scandinavian cabinets are the way to go, but your potential buyer may prefer dark wood.

-Do invest in cabinet refacing if your cabinets are outdated. Many refacing companies will give your cabinets a fresh façade for under $2,000, and it’s a good investment in creating a positive impression of the room without doing a pricey knock-down.

-Don’t go granite crazy. Spending thousands of dollars on a new countertop and backsplash is downright dangerous; as there are so many different options these days, it’s impossible for the home seller to find one that will please most people.

-Do hire a professional cleaning company to come in and make what you have sparkle. This won’t magically make your tile look magazine-spread-worthy, it will certainly make it look a lot better. Discoloration from age often makes tile look even worse.

Bathroom
-Don’t do expensive tub/shower renovations.  Just like with the big-ticket kitchen fixes, this is a matter of taste.  You put in a round jetted tub, and the buyer prefers square.  And is a steam shower really something everyone will love?

-Do replace dated bath and shower fixtures; this can be done generally quite inexpensively. If you have a tiny showerhead, replacing it with a large, rainwater-style model will lend a subtle spa-like quality without costing a lot.

-Don’t replace your smallish vanity with a new, built-in model. A lot of remodelers emphasize the intrinsically relaxing qualities of having all your toiletries, and towels beautifully organized in one big unit made of high-end wood, marble and chrome. And it is certainly beautiful. But it’s also a risky choice, and a matter of taste.

-Do freshen up the vanity area. Invest in a big mirror with bright lights over it. And a few hundred dollars spent on a nice faucet is well worth it. Like the showerhead, it’s a true basic—and updating the basics, in most homes is all the home seller should be focusing on.

Kitchen:
Declutter your counters. A disorganized kitchen is a buyer-deterrent. Clean up the counters and pare down countertop items to the essentials—toaster, microwave, coffee pot and not much more.

Keep your pantry and cabinetry clutter-free too. You don’t have to alphabetize your cereals—just know that potential buyers will probably open those cabinets.

-Give your kitchen table or breakfast bar some life. It’s simple—placemats, a colorful vase or two and a tasteful flower arrangement will reinforce the idea that the kitchen is the heart of the home.

Bathroom:
-If you want to add a little life to the wall, try a simple, straight-lined wood or stainless-steel floating shelf with a few candles on it. It’s an elegant, boutique-hotel touch that doesn’t cost much.

-Toss down a colorful floor mat. Bathrooms are often devoid of color; this is a great way to add that color, and a little warmth.

-Again, clear clutter. Even your beauty essentials shouldn’t be on the counter.

December Monthly Market Report:

• Closed sales for detached single-family homes in the month of December climbed to 505, up 7.68 percent from the previous month.
• Pending home sales for December show an increase of 13.45 percent from the previous year.
• The median sale price for single-family detached homes saw a year-over-year increase for the 4th consecutive month. The average sale price for the same homes shows a year-over-year increase for the 6th consecutive month.

http://www.youtube.com/watch?v=GCz1brWc0mA

What’s on the horizon for Home Prices In Albuquerque?

Looking at 2011, what’s on the horizon for Home prices? Many national and local economists are forecasting a continued decline in home prices, I don’t think so. I think 2011 is the year home prices will begin to  increase here in Albuquerque. Let’s take a look at some important indicators.
The American Recovery and Reinvestment Act (ARRA) is pumping jobs into the economy.  More jobs equate to more home buyers … more home buyers equates to more demand for housing, leading to an increase in home prices.

 The affordability index is at an all-time high, which also lures more home buyers into the marketplace and this will allow home prices to increase slightly in 2011.  Look for national increases of 2-3% in home prices and our local Albuquerque market should follow suit.

Interest Rates
Mortgage rates will likely rise slightly throughout 2011, exceeding the 5% level before year-end. However, rates should remain below 5% until May. The Federal Reserve will not raise rates until the unemployment rate decreases significantly, and will keep the short-term interest rate near zero through 2011 drawing out home buyers and allowing home prices to begin to increase.

Consumer Confidence
Research from a variety of sources shows that consumer confidence rose 49.9% in the last quarter of 2010. 49.9% in October and up to 54.1% in November.  Additional reports indicate a 5.5% increase in retail sales from November through December, as consumer spending continued to make a comeback. While there is always some increase in consumer confidence after an election, if consumer confidence continues to improve at this level it will certainly help the economy and the real estate market and home prices in 2011.

I think this is the kind of market data we’ve been waiting for and gives a good indication of the direction of home pricing in 2011.

Selling your home – First impressions matter. Creating memorable first impressions with home improvements pays off when selling your home. 

PROJECT 1: Entry Door Replacement (Steel)

Cost $1,218 – Resale value $1,243

Cost recouped 102.1% - National averages 

A new entry door can make a big splash when selling your home, but only if it complements the style of the house. The biggest mistake people make is to choose a door that doesn’t match the home.  For high-end homes, leaded glass may be appropriate. But in a more moderately priced home, a regular steel door painted in a color that complements the home’s trim will make a bigger impact.  

project 2: Garage Door Replacement

Cost $1,291 - Resale Value $1,083

Cost Recouped 83.9 % - National Averages

You should  be careful when choosing a garage door because it’s easy to buy a more expensive product than what’s necessary when selling your home. In many cases, a basic door will do the job. There are a few standard garage doors priced around $600, and installed they might be twice that. If you want that carriage door look, expect to pay three times as much. 

Windows allow in natural light. That’s important and often overlooked when selling your home. Windows aren’t typically a large extra expense, costing about $100 extra. But they make an enormous difference in the usability of your garage. 

Another potential selling point when selling your home is a belt-driven garage door opener, which costs about $100 more than a chain-driven model. A chain drive is noisy. With a belt, you can hardly hear the door move.   

PROJECT 3: Kitchen Remodel (Minor)

Cost $21,695 – Resale value $15,790

Cost recouped 72.8% - National averages  

Too often, when selling your home you’ll over improve your kitchen. That’s not cost-effective unless you’re staying a long time. 

To save a good chunk of money, keep your existing electrical wiring and plumbing in place. 

Another idea: Considering painting your cabinets instead of buying new ones.  And while many home owners opt for laminate flooring that resembles wood, ceramic tile is a smarter option. With a laminate, you may get a negative reaction. You can buy a nice ceramic tile for the same amount of money as wood laminates. 

However, do consider a laminate counter top. The most cost-effective way to give a kitchen a better look is with a laminate. The selections today are very impressive, with many mimicking quite well the look of marble, granite, or other natural stones.  

The minor kitchen remodel may carry a high price tag, but when selling your home it’s a relatively inexpensive face-lift to what many buyers consider the most important room in the home. 

PROJECT 4: Deck Addition (Wood)

Cost $10,973 – Resale value $7,986

Cost recouped 72.8% - National averages  

A new wood deck can look stunning, but if not done correctly it could turn into a drawback for buyers. Home owners can add an 8-by-8-foot wood deck, but it’s so small the space seems useless. Or they can put on a deck that spans the length of the home. That’s great for entertaining, but they’ll never recoup the cost.  

Adding a natural stain can be a final selling point. Colored stains like darker browns and reds wear quickly very unevenly. Natural stains wear more evenly. 

Mortgage rates jump. Will home prices fall?

Borrowing money to buy a home just got more expensive. Will this begin to affect home prices? The average national rate on a 30-year mortgage rose to 4.83%, Freddie Mac said Thursday. That's an increase of about two-thirds of a percentage point in just five weeks. Although we're doing just a little better here in Albuquerque, we're feeling the rate creep also.

The rate increase means monthly payments on a new home purchase will jump. Here's an example of what that would mean in dollars and cents. Five weeks ago, a buyer with a 30-year mortgage that would have committed to a payment of $487 a month, is now going to pay $528 for that same home. that's an 8% price difference.

Will these costlier mortgages cause already wobbly home prices to fall further to compensate? It's unlikely that the recent mortgage rate increase foretells the further falling of home prices. The current mortgage rates, after all, are still extraordinarily low. The 4.17% mortgage rate recorded just five weeks ago is the lowest since at least 1970 when Freddie Mac was created and began tracking mortgage rates and home prices. The average mortgage rate over the past four decades was close to 9%.

That's not to say that home prices won't fall but it's unlikely and would probably be for other reasons. It does seem that jobs, incomes and economic growth are now the driving forces and are more likely to decide what happens next with home prices, not a change in the 30-year mortgage rate.  

 Albuquerque Mortgage Rates

The median home prices for a single-family detached home here in Albuquerque saw a year over year increase for the 3rd consecutive month indicating that home prices in Albuquerque are stabilizing.

Facing Forclosure

You May Have A Better Way Out!

There are countless hardships that can turn home ownership from a joy into a burden. The loss of a job, medical bills, or an unexpected hike in monthly payments can all make a mortgage unaffordable.  But ignoring the bills will not make them go away, it will only make things worse.

If your seeking help, here is a great website with helpful information as you proceed with your decision making process. 

New Mexico Mortgage Lenders Association

A New Home For The Holiday:

As of today mortgage interest rates are as follows: