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How Much Mortgage Can I Afford?
Buying a home and getting it financed can be a complex issue
if you are not aware of the market trends. The first question that comes
to your mind when you want to buy a home is “how
much mortgage can I afford”. To help you determine how much
mortgage you can afford, you need to know the factors that lenders use
to determine how much you can borrow. Factors
determining how much mortgage you can afford
There are
several factors that determine how much mortgage you can afford. They
are:
1. Your credit
score – Your credit score is an important factor in the loan approval
process. If it is too low, it will be difficult for you to get a conventional
loan. It also affects your interest rate directly.
2. Your housing expense to income ratio – It is generally assumed
that your monthly mortgage payment including principal, interest, property
taxes and homeowners insurance should not exceed 28% of your gross monthly
income.
3. Your debt to income ratio – Your debt obligation is an important
deciding factor that lenders use to decide how much you can borrow. Your
total debt payments including your mortgages, credit car payments, car
payments, child support payments and any other debt obligations that you
need to pay on monthly basis should not be more than 36% of your gross
monthly income.
4. Determine your down payment – It is one of the most important
factors that determine “how much mortgage can I afford”. Most
lenders expect a down payment of at least 20%. However, if you are unable
to do so, you may be asked to take a Private Mortgage Insurance (PMI).
Larger down payment can effectively lower your projected monthly payment.
5. Determine the Closing costs – The total amount of money that
you need to purchase a home includes your down payment amount plus your
closing costs which equals anywhere between 2-5 % of the total amount
borrowed. Make sure that it is affordable for you.
6. Determine the cost of homeowner’s insurance – There are
several factors that can affect the cost of homeowner’s insurance.
Typically, it is about 1% of your loan amount.
If you follow
the factors mentioned above, you won’t be left wondering “how
much mortgage can I afford” anymore. The factors would help you
determine your repayment capability and will also help you choose the
mortgage that is best for you.
Check your FICO credit score & get mortgage relief at myFICO
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