Finding Similarities Between Homes and Life

Posted on Posted in Real Estate

5 Factors Determining Mortgage Affordability “How much mortgage can I afford?” is one of the most common questions first-time home buyers ask. To give you an appropriate, a lender will look at a number of factors. Income The amount you earn is a key factor that determines how much mortgage you can afford. According to lenders, your cost of monthly mortgage should be no more than 28% of your gross earnings monthly. To find out your gross income, add your regular salary to bonuses, commissions or tips, regular dividends, alimony/child support, and annual interest earnings. To arrive at your monthly gross earnings, divide the annual amount by 12.
The Path To Finding Better Resources
Mortgage rate
The Path To Finding Better Resources
Mortgage rates change all the time and even an insignificant rise in rates can affect your purchasing ability. For instance, a $200,000 home with a fixed mortgage rate of 3.75% for 30 years will require a monthly payment of $926. If your rate rose to 4.25%, the monthly payment would rise by almost 60 bucks. Credit score Lenders use credit score to determine how risky a borrower is, which is why people with higher credit ratings typically get lower interest rates. Having a poor credit rating doesn’t necessarily end your dreams of owning a home, but if your type of loan partly affects your interest rate depending on your credit rating, it could restrict your purchasing power. Down payment If you want a mortgage, you must have some money set aside for making a down payment. Down payment is simply a percentage of the whole price of the property that must be paid right away in cash, to bring down the mortgage amount. With regular mortgage financing, the down payment must be 20 percent or more, otherwise private mortgage insurance, aka PMI will have to be added to the monthly payment. PMI helps protect lenders from people that may default on mortgages. Government-backed loans such as VA and FHA come with lower down payment requirements. Regardless of which loan program you choose, you must contribute some cash upfront to finalize the deal. Debt While you don’t need to be free of debt to purchase a home, auto loans, credit card debit, student loans and so on can affect your buying ability. Most lenders say that your monthly mortgage cost, which comprises principal, interest, as well as insurance and taxes should not exceed 28% of your gross earnings each month. This is called front-end ratio. Moreover, your lender will look at your back-end ratio (debt-to-income ratio), which comprises your monthly monetary obligations like alimonychild support, minimum credit card payments, auto loans, student loans as well interest, insurance, taxes and principal. Ideally, lenders say that this should not exceed 36% of gross earnings per month.