How Much Can You Afford?

As we get farther into the process, you will select a loan officer who will go through your whole financial picture carefully and help you determine how much of a monthly payment and sales price you can afford.  In the meantime, here are some basics that will be helpful as you are gathering information:

• Your monthly housing expense, including your principal and interest on the loan, property taxes, hazard insurance and any homeowner’s association fees (if applicable) should not exceed 31% of your gross monthly income (it is recommended that you not exceed 28%).

• Your proposed monthly housing expense plus your total monthly debt service (such as car loans, student loans and credit card payments) combined should not exceed about 43% of your gross monthly income (the recommendation is to not exceed 36%).

Note: Lenders refer to these ratios (31/43%) as DTIs (Debt-to-Income Ratios); “front-end” is housing only, “back-end” is housing plus other debt service. These ratios are only approximate and will vary depending upon your individual credit, how much of a down payment you have and what loan program you are using.

There are mortgage calculators all over the Internet and we would wager that you have probably already been on several trying to figure out just where your price range will be. Mortgage calculators will give you a good idea, but your actual numbers may, in fact, vary quite a bit. Sometimes lenders cannot use all of the income that you receive (such as overtime and bonuses) or things may show up, of which you are not aware, on your credit report that impact your final qualification.

As we begin our home search, one of the first steps will be to get you in front of a professional, ethical loan officer to help us determine what direction you should take.

Next up: How Much Cash Do You Need?