When it comes to purchasing a home, one
of the first questions you need to ask yourself is How much can I afford? This will
also be question that will be on the mind of your mortgage lender. They will use a series of calculations and
formulas to come up with a figure, but you can do the same thing for yourself
before you even start shopping around. Of course you could do it the easy way
and log online to one of the numerous mortgage company websites that offer a
pre-qualification calculator, or you could take a little bit of your time and understand
what goes into the mortgage lender figuring out the magical number.
This article will give you a better idea of
what types of home will be in your price range. Figuring out just how much home
you can afford involves numbers and ratios, but it should also involve
understanding your own personal preferences and financial behavior. For
example, a lender may qualify you for a large amount, but in order to make the
monthly payments you would have to cut back on things like weekend movies, dinning
out or any other expenses you might have that relate to entertainment. Only you
can decide whether or not the bigger house will be worth the lifestyle
sacrifices you may have to make.
Once
you have determined your own mortgage preferences, you need to look at your
finances and resources from the perspective of a potential mortgage lender to
figure out how much of a loan you can afford. Lenders will lend you an amount
of money based on how sure they are that you have the means and habits
necessary to pay them back. In order to determine how much of a potential
default “Foreclosure” risk you are, they will look at several key factors: your
income, your credit history, and your down payment.
Of
course, mortgage loans are safer loans than most others for lenders, since you
are pledging the home and property as collateral for the loan. If you should
default on the mortgage, the lender will have the legal right to repossess the
home and try to sell it to recover the amount of the money lent to you. Still,
no lender really wants to have to go through that foreclosure process as it
takes plenty of time and lots of money for lawyer’s fees and paperwork. They
would much rather go into the loan feeling confident that you will repay the
loan. So,
a lender will start by looking at your sources of income. This will include not
only your yearly salary, but any bonuses or commissions you receive. It will
also include a list of your assets the balances of your savings and investment
accounts, and even the value of any cars or boats you own. This helps your
lender to see what sources of wealth you could turn to repay your mortgage in the
event of a job loss or other crisis.
Lenders
use a ratio called the DTI “debt to income ratio” to determine if your income
is sufficient for a certain loan amount. While standards vary by lender and have
become more stringent since the mortgage crisis of 2008, the general rule is
the 28/41 ratio. The front end ratio, the 28, means that lenders like to see
that your monthly obligation/debts, excluding your housing payment, do not
exceed 28 percent of your monthly income. So for example, if you make $5,000
per month, your monthly payments (auto loans, student loans, credit card bills,
etc.) should not be more than $1,400 (28 percent of $5,000.) The back end
ratio, the 41, means that your total monthly payments, including the potential
mortgage payment, should not exceed 41 percent of your monthly income. So using
the same example above, 41 percent of your income would be $2050. If you have
monthly debts in the amount of $700, you would have $1350 left over for a
monthly mortgage payment.
Lenders will also use your credit history as a means of determining whether or not to lend to you and how much interest to charge you. Obviously, the better your credit score the better the interest rate will be on your loan & could even mean a better loan product. If you have time and your score is not as high as you’d like it to be, start working now to improve it before you apply for a mortgage. Use our previous post as a guideline on things you can do to improve your credit.
How
much of a down payment you plan to make could also have an effect on how much
you can afford or how much a lender will loan you. The bigger your down payment,
the less risk the lender feels like he is taking on and you will probably
receive a better rate, and of course you will pay less interest over time.
Keep
in mind if all this seems a little confusing, you can easily just log onto one
of the numerous mortgage company websites that offer a pre-qualification mortgage calculators or other helpful calculators that will figure it all out
for you. The main thing you should be trying to figure out is to get a rough
idea of your mortgage limits before you start shopping for a new home loan.
Doing so will make the house hunting process less stressful for you and your
family.
About the Author:
ZFG
Mortgage headquarter in Tulsa, Oklahoma is the #1 rated mortgage lender in the
state of Oklahoma. At ZFG Mortgage we pride our selves in offering the lowest
mortgage rates at the lowest closing costs. We have & A+ Rated rating with the Better Business
Bureau & have been nominated & won numerous awards like the BBB Torch
awards and the BBB Honor Roll for NO complaints in the last 3 years! If you are
need of a Home loan in Oklahoma, then go with the lender you can trust. Apply
online or call for Free Rate quote or Pre-Approval.
ZFG
Mortgage
6670
Lewis Ave # 200
Tulsa,
OK 74136
Phone:
918-459-6530
Fax:
918-459-6535
Toll
Free: 1-877-205-7266
No comments:
Post a Comment