Own Luxury Homes®
Step 1: Financial Preparation for Buying a Home
28% gross income rule: max monthly payment includes P&I + taxes + insurance + HOA + PMI. 5% down on $425K: $21,250 down + $8–20K closing costs + $4–8K prepaids = $33–49K total cash. Credit minimums: FHA 580, conventional 620, VA/most lenders 620+; 680 vs 760 score = ~$37,800 savings over 30 years on $350K. 20% down not required: FHA 3.5%, conventional 3%, VA/USDA 0%. Down payment assistance available in all 50 states. Own Luxury Homes® 12-Point Agent Integrity Audit™ — financial picture first.
Step 1: Financial Preparation — How to Know What You Can Really Afford Before You Talk to a Lender
The first mistake most home buyers make is starting with Zillow instead of a spreadsheet. They find a neighborhood they love, identify homes at a price point, and then try to make their finances fit. The correct order is the reverse: know the maximum monthly payment you can comfortably carry, then work backward to the purchase price. And the monthly payment you need to calculate is not the mortgage payment shown in the listing description. It's the mortgage payment plus taxes plus insurance plus HOA plus PMI. That total is typically $400–800 higher than what the listing calculator shows.
The Affordability Calculation: Working Backward From Payment to Price
Step 1A: Calculate Your Maximum Monthly Housing Payment
Start with your gross monthly income (before taxes). Multiply by 0.28: this is the maximum monthly housing payment under the conservative 28% rule. Example: $95,000 annual income ÷ 12 = $7,917 gross monthly. $7,917 × 0.28 = $2,217 maximum monthly housing payment. This payment must cover: mortgage principal and interest, property taxes (typically 0.5–2.5% of home value annually, divided by 12), homeowners insurance (typically $100–250/month), HOA fees if applicable ($0–800/month), PMI if down payment is under 20% (typically 0.5–1.5% of loan annually). Most buyers calculate only the P&I (principal and interest) and forget the other three or four items. At a 6.5% rate with 5% down on a $400,000 home: P&I: $2,402. Property tax (1.2% avg): $400. Insurance: $150. PMI (0.8%): $253. Total: $3,205. Not $2,402.
| Income | Max Housing (28%) | Target Purchase Price at 6.5%, 5% down, 1.2% tax | True Monthly (PITIMI) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| $65,000/yr | $1,517/mo | ~$220,000 | ~$1,650–$1,800/mo | ||||||
| $85,000/yr | $1,983/mo | ~$290,000 | ~$2,150–$2,350/mo | ||||||
| $110,000/yr | $2,567/mo | ~$375,000 | ~$2,800–$3,050/mo | ||||||
| $150,000/yr | $3,500/mo | ~$510,000 | ~$3,800–$4,100/mo | ||||||
| $200,000/yr | $4,667/mo | ~$680,000 | ~$5,100–$5,500/mo | ||||||
| These are estimates. Your actual numbers depend on your specific tax rate, insurance premium, HOA, credit score, and loan type. Use these as planning benchmarks, not purchase commitments. | |||||||||
Credit Score: What It Means for Your Rate and Payment
The Credit Score/Rate Relationship
Your credit score is the single biggest variable you control that affects your mortgage rate and payment. Minimum scores by loan type: FHA: 580 with 3.5% down; 500–579 with 10% down. Conventional: 620 minimum; 740+ for best rates. VA: no official minimum; most lenders require 620. USDA: typically 640+. The rate impact: on a $350,000 loan, the difference between a 680 and 760 credit score is typically 0.5–0.75% in rate. At 0.5% rate difference: approximately $105/month. Over 30 years: $37,800 in additional interest. If your score is below 700: spend 3–6 months improving it before applying. The math strongly favors waiting.
What to Fix Before You Apply: The Credit Improvement Checklist
| Action | Timeline to Impact | Score Impact |
|---|---|---|
| Pay all accounts current (eliminate any 30-day lates) | 1–2 months for reporting; impact immediate on new report | Significant; 30-day lates drop scores 60–110 points |
| Pay down revolving credit card balances below 30% utilization | 30–60 days for reporting | Moderate to significant; utilization is 30% of FICO score |
| Do not open any new credit accounts | Immediate; inquiries lower score for 12 months | Small per inquiry; pattern of new accounts signals risk |
| Do not close old accounts (even unused) | Immediate | Closing old accounts reduces available credit and raises utilization |
| Dispute any errors on your credit report | 30–45 days for dispute resolution | Can be significant if errors are removing positive history |
| Become an authorized user on a family member's old, well-managed account | 1–2 months | Moderate; adds positive account history to your file |
Down Payment: What You Actually Need
The 20% Myth
20% down is not required. It is the threshold that eliminates PMI on conventional loans. Loan options with lower down payments: FHA: 3.5% down with 580+ credit score; Conventional 97: 3% down; VA loan: 0% down for qualifying veterans and active military; USDA: 0% down in qualifying rural and suburban areas. PMI at 5% down on a $400,000 loan: approximately $133–253/month. It cancels when your loan reaches 80% of original appraised value (typically 7–10 years of payments at normal rates), or you can request removal when you reach 20% equity. Down payment assistance programs exist in every state: income limits, purchase price limits, and geographic restrictions apply. Check your state housing finance agency before assuming you need 20%.
The Full Cash-to-Close Calculation
What to Bring to Closing
Total cash needed to close = down payment + closing costs + prepaid items + reserves (if required). Closing costs (lender fees + title + government): 2–5% of loan amount. Prepaid items (insurance, property taxes, interest): $3,000–8,000 depending on closing date and rate. Reserves: some loan programs require 2–3 months of housing payment in savings after closing. Example: $400,000 purchase, 5% down. Down payment: $20,000. Closing costs: $8,000–20,000. Prepaids: $4,000–6,000. Total: $32,000–46,000. This is before moving costs ($1,000–5,000) and immediate repair or improvement budget.
“The affordability conversation I have before anything else: "Show me your budget — not the purchase price range, the monthly payment you can comfortably carry if your income dropped 15%. Not the payment you can technically make. The payment you can carry without anxiety if something goes wrong at work or your car needs a $4,000 repair three months after closing." Most buyers answer with a number that's at the absolute ceiling of what they can afford. And then they find a house they love and push past that ceiling. The ceiling exists for a reason. Your mortgage lender will approve you for more than you should borrow. Their job is to make loans. Your job is to decide what's actually sustainable.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
How much house can I afford?
Start with 28% of gross monthly income as your maximum housing payment — including mortgage principal and interest, property taxes, insurance, HOA, and PMI. Not just the P&I payment shown in mortgage calculators. On $110,000 annual income, 28% rule = $2,567/month maximum total housing. At 6.5% with 5% down and typical taxes/insurance/PMI, that supports approximately a $375,000 purchase price. Your lender may approve you for more. That does not mean you should borrow more.
How much do I need for a down payment?
Minimum down payments: FHA 3.5% (580+ credit), Conventional 3%, VA 0%, USDA 0%. 20% down eliminates PMI on conventional loans but is not required. Down payment assistance programs exist in all 50 states with varying eligibility. Total cash needed at closing = down payment + closing costs (2–5% of loan) + prepaid items ($3,000–8,000). Budget for all three.
What credit score do I need to buy a house?
Minimum by loan type: FHA = 580 (3.5% down) or 500 (10% down); Conventional = 620 minimum, 740+ for best rates; VA = no minimum, most lenders want 620+; USDA = 640+. A 760 score vs 680 score on a $350,000 loan saves approximately $37,800 over 30 years. If your score is below 680, spend 3–6 months improving it before applying.
Own Luxury Homes® — financial preparation review before the first showing. 12-Point Agent Integrity Audit™. Start with a verified buyer specialist ›
"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)