How Do They Calculate How Much Mortgage Can You Have?
How Much
House Can I Afford?
You can learn more about Mortgage, Reverse Mortgage its Affordability and its rules and requirements and eligibility criteria on Being a Realtor. Here you can calculate your Mortgage Affordability as well and learn more about How Do They Calculate How Much Mortgage Can You Have?,
Source: bankrate
Applying for
a mortgage and buying a house is a major financial decision that can affect
your bottom line for up to 30 years or more so it is important to understand
how much house you can afford.
The first step in paving a smooth financial path
for yourself is to add up your monthly income and expenses. Use our calculator to help with this.
The calculator will analyze your monthly income,
expenses, and future property taxes and insurance to estimate the mortgage
amount that would best fit your budget.
Start with
budgeting basics
It’s a
matter of looking at how much money you earn versus how much you spend. Don’t
include what you’re currently paying in rent or mortgage in your expenses,
since you will put that money toward your proposed mortgage.
Subtract your
expenses from your income. The difference is what you have to work with when it
comes time to buying a house.
Once you have this figure in mind, you will get
an idea of how much house you can comfortably afford.
What factors
determine "how much house I can afford?"
Your housing
costs with a mortgage will be affected, for example, by your credit score and
the size of your down payment.
Include taxes, homeowners’ association fees,
private mortgage insurance (PMI), if your down payment is less than 20 percent,
and any other anticipated fees in the total cost.
This will give you a clearer
picture of how much you’ll be spending each month. Two houses with the same
price tag in the same city can carry different monthly costs due to these
variables.
How much house can you afford?
Use the
28-36 rule
Most
mortgage lenders use the 28-36 rule to determine what you can afford and how
much money they’re willing to lend you.
The 28-36 rule states that your maximum
household expenses shouldn’t exceed 28 percent of your gross monthly income.
This is also called the housing ratio or the front-end ratio.
Likewise, total
debt, which includes everything from student loans to credit cards, should fall
below 36 percent of your income. This number is your debt-to-income ratio, or
DTI. To get this number simply add all of your monthly debt and divide it by
your gross monthly income.
If your monthly income is $4,167, or $50,000
annually, and your debt is $600 per month then you have a DTI of 14 percent.
For those who are preparing to buy a house, following this rule will not only
help you budget wisely but might also help you qualify for a loan since these
ratios are important to lenders.
Affordability
according to banks
The 28-36
rule is a general guideline lenders consider, but it’s not set in stone. In
fact, per Fannie Mae rules, most standard loans have a 50 percent maximum
allowable DTI ratio. For manually underwritten loans, the maximum DTI is 36
percent.
There are instances when lenders may bump that up to 45 percent if the
borrower meets certain requirements.
The
down-payment crunch
A major
hurdle to homeownership is the down payment. Although many folks can afford to
make the monthly mortgage payments, they don’t have enough cash for a
conventional loan down payment, which can be up to 20 percent of the total
cost. Today, there area banks and government programs, such as FHA loans, that
cater to otherwise qualified borrowers who don’t have a large down payment.
Here are a few examples:
- Bank of America’s Affordable Home Solution
- CitiMortgage’s HomeRun loan program
- Navy Federal Credit Union ( it offers 3 types of 0 percent down programs)
- HomeReady mortgage created by Fannie Mae
- FHA, VA and USDA loans
The bigger
affordability picture
Keep in mind
that just because a lender will give you a mortgage of X amount on a home, that
doesn’t mean you should go for the maximum. Think ahead about your
circumstances.
Are you qualifying based on two incomes when later you may only
have one? What about the cost of raising children or financing retirement? Do
you have an emergency fund to keep the mortgage going in the event of a job
loss, and what happens if the house needs major repairs?
So the question isn’t
how much house you can afford, it’s how much house you can afford and be able
to pay for all the other things in life. Being house-rich and cash-poor can be
an uncomfortable lifestyle.
You can learn more about Mortgage, Reverse Mortgage its Affordability and its rules and requirements and eligibility criteria on Being a Realtor. Here you can calculate your Mortgage Affordability as well and learn more about How Do They Calculate How Much Mortgage Can You Have?,
Great tips, many thanks for sharing. I have printed and will stick on the wall! I like this blog. Reverse mortgage to purchase a home
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