Lessons Learned About Mortgages

Five Factors that Determine Mortgage Affordability One of the most common questions first-home home buyers ask is “How much mortgage can I afford?” To give you an appropriate, a lender will look at a number of factors. Earnings Your earnings are an important factor that determines how much home loan 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.
Figuring Out Resources
Mortgage rate
Figuring Out Resources
Mortgage rates constantly fluctuate and even a slight rise in rates may affect your ability to buy. For example, if you bought a home with a 200, 000 dollars 30-year fixed rate mortgage with a 3.75% interest, your monthly payment would be 926 bucks. If your interest rose to 4.25%, your payment each month would increase by almost $60. Credit score Credit scores are used by lenders to determine the risk level of borrowers, so this is the reason why people who have higher credit scores usually get reduced interest rates. Even if your credit score is poor, you can still own a home, but your buying power could be affected if your loan partly affects your rate depending on your credit rating. Down payment If you want a mortgage, you must have some money set aside for making a down payment. Put simply, a down payment refers to a fraction of the price of the house that must be paid in cash upfront, which decreases the mortgage amount. With standard mortgage financing, the down payment needs to be at least 20 percent, otherwise a home buyer will need to include private monthly insurance, or PMI to their monthly payment. PMI helps protect lenders from people that may default on mortgages. Down payment requirements for government-sponsored loans like VA and FHA are much lower. 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. According to most lenders, your monthly mortgage expense, which includes principal, interest, insurance and taxes should be no more than 28 percent of your gross earnings per 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 advise that this shouldn’t be more than 36 percent of your gross earnings every month.