Buying a home entails many decisions: how much space do you need, what location do you want, what payment can you comfortably afford? All of these must be answered before you even begin to look at property or you're simply wasting your time looking at homes that don't meet your criteria. Price range is one of the biggest choices you'll have to determine. Most lenders want to see the mortgage payment equal to no more than 28 percent of your gross monthly pay.
Ask your lender what your full mortgage payments will total for a particular price range. This number should include the amount that gets paid toward the principal balance of the loan, the amount that goes toward interest, the monthly property tax escrow amount and the monthly insurance amount.
Divide the mortgage payment by .02333. This amount is 28 percent (the maximum allowable percentage of your income a lender permits for housing costs) divided by 12 (the number of months in a year).
Compare the number to your current salary to determine whether you can afford the payment. For example, if the monthly mortgage payment came to $986, you'd divide 986 by .02333 to get $42,263. If your salary meets or exceeds that number, you qualify for the house payment.
Add all your other debt obligations together. Lenders want to see a total debt-to-income ratio of no more than 36 percent, with no more than 28 percent of that going to pay for the house. If you have credit card debt, a car loan, student loans or other obligations, you may not qualify for the mortgage even if you have the salary determined through the above equation. For instance, if you make $45,000 a year, you would multiply 45,000 by .36 then divide by 12 to find the monthly maximum allowable debt obligation--$1,350 in this example. If $986 goes toward the mortgage, no more than $364 can go toward your other payments.
Meet with a mortgage broker before looking at property. She'll be able to look at your credit, income and debt-to-income ratio to help you determine what you can afford to pay for a house.
Your lender may estimate the monthly tax and insurance amount.
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