Home Sweet Home

How many artists reading this article own their own home? Personally, I don’t know very many. I can probably count them on one hand.

How many artists dread annual rent increases, have been repeatedly priced out of apartments they have renovated by greedy landlords, and have had to start all over again in a new neighborhood? In other words, how many artists feel powerless in their living situation? I think nearly everyone I know fits into this category—myself included.

Lately, I have become genuinely concerned by the number of artists being subjected to the second scenario—the never-ending cycle of moving into underutilized buildings, most often in abandoned or marginalized neighborhoods, gutting / repairing / establishing spaces in which to live and work, only to be kicked out again several years later. I want to encourage artists to take a stand against this and buy a home. To help accomplish such an admittedly difficult process, this is my first article in an upcoming series of articles in FYI dealing with artist housing issues.

Jump Starting the Process

Now it’s time for a reality check. How many artists have $200,000-$300,000 (modest for NYC) in cash, investments, or assets sitting in their accounts? Not many, but don’t let this discourage you. You should know that about 99% of homebuyers borrow money to purchase their homes. In light of this fact, the most important question now becomes how much can you afford to borrow?

To determine this, a lender/bank will take a couple of things into consideration before giving you a loan. First, a lender will take a very close look at your financial situation, which basically means the money you make versus the money you owe on any outstanding debts, such as student loans, car payments, etc. Second, a lender will look at your credit rating, or FICO score (FICO is short for "Fair, Isaac and Company," which developed the mathematical formula used to calculate these scores). FICO scores range from 300 to 850 (higher than 660 is generally considered good). Your score will show a lender how much of a risk you carry as a borrower. For instance, if you have repeatedly missed paying credit card bills, defaulted on prior loans, or filed for bankruptcy, these factors will give you a lower credit rating, making you a riskier borrower (FICO scores equaling 620 or lower). By measuring your finances and credit rating, a lender will comfortably be able to provide you with a monetary figure that you would be eligible to borrow for the purchase of a home. Generally speaking, if you have steady income and good credit, the amount is approximately 2-2.5 times your annual gross income.

Figuring Out Your Monthly Income

Here’s how to figure out your monthly gross income (your monthly income before taxes). Begin by listing all of your total annual incomes from work, sales/commissions, interest/investments, child support, social security, etc. Worksheet 1 can help you do this. If you have other income from freelance work, art commissions, or the sale of artwork, you should also include this information on the worksheet. Please remember that in order for you to list specific monies as income, you must first have claimed them as income and paid taxes on them. Additionally, if you plan to buy a home with a spouse or partner, you should include her or his information in the second column of this worksheet. The last step is to add the columns together and divide by 12 to determine your monthly gross income.

Figuring Out Your Monthly Expenses

Now, let’s figure out your monthly expenses. Begin by listing all of your total monthly expenses from car and student loans, credit card debts, alimony/child support, etc. Worksheet 2 can help you do this. If you plan to buy a home with a spouse or partner, you will also need to include her or his expenses in the second column of this worksheet. Here’s an additional tip: if you have less than 10 monthly payments left on any loan, you don’t need to include it in your monthly expenses. (You may also want to choose to prepay a loan to get it below ten monthly payments so you won’t have to count it.) The last step is to add the columns together to determine your monthly expenses.

Debt-to-Income Ratios

Before giving you a loan, a lender will compare your monthly gross income (Worksheet 1) and monthly expenses (Worksheet 2) to a ratio called the Debt-to-Income Ratio. The Debt-to-Income Ratio most commonly used is 28/36. The first number (28) is called the housing expense ratio. It is the maximum percentage (28 percent) of your monthly income that you can spend on your monthly mortgage payment. The second number (36) is called the overall debt ratio. It is the maximum percentage (36 percent) of your monthly income that you can spend on all of your combined monthly debts, including your monthly mortgage payment. Worksheet 3 will help you figure out your debt-to-income ratio. Please keep in mind that the larger your down payment is on a home, the less important these ratios become.