- Joined
- Nov 20, 2012
- Messages
- 2
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Home
buying is an emotional process and one of the biggest in an
individual`s life. However, one shouldn`t lose one`s conviction
of the reality while shopping around for a suitable house. One of the
most important parts of the home buying process is the calculation of
mortgage affordability that can prevent homeowners from defaulting on
the monthly payments. This may put their house on the brink of a
foreclosure. So, it is better to ask `how much house can I afford`
before taking out a loan rather than going homeless altogether.
In
this case, homebuyers ought to know the basics of calculating their
mortgage affordability prior to applying for one.
Factors
to consider while calculating mortgage affordability
Homebuyers
will have to consider the following factors while calculating their
mortgage affordability:
[*]
Down
payment `
Homebuyers should seriously consider paying a good amount as down
payment while taking out a mortgage loan. Usually, lenders demand a
down payment of about 20% of the principal loan amount. An
individual will qualify for a particular loan program on the basis
of his down payment amount. If a homebuyer fails to make the minimal
down payment as demanded by the lenders, then he has to buy private
mortgage insurance (PMI) as a guarantee against the loan given out
by them.
Household
income `
This is one of the most crucial things to consider while undergoing
a home buying process. It is very important to calculate the total
household income and the probabilities of future changes in income
patterns.
This is due to the fact that any drastic changes
in the monthly disposable income will decide whether or not one can
make the repayments comfortably. This is known as front-end ratio or
housing ratio. Borrowers shouldn`t incur more than 28% as their
monthly mortgage expense.
[*]
Debt
liabilities `
Lenders look for the debt-to-income (DTI) or back-end ratio that is
based on the amount of money spent on making the monthly debt
payments so as to derive the mortgage affordability of a homebuyer.
So, homebuyers need to calculate their overall debt liabilities
still needed to clear out and then proceed with the mortgage
application accordingly.
For instance, they must take into
account costs like child support, alimony, credit card bills,
student loans etc while determining their DTI. It should be noted
that DTI mustn`t be more than 36% of a person`s gross disposable
income.
Closing
expenses `
Expenses associated with the loans are a major determinant of a
person`s mortgage affordability. These costs are incurred by both
the buyers as well as sellers required to process the loan
application. It comprises of attorney fees, survey costs, appraisal
charges and title policy documentation. Here lenders are liable to
provide a good faith estimate to the borrowers of all the costs
attached with the loan. Traditionally, closing costs remain in
between the range of 2-7% of the home`s selling price.
Lastly,
the rate of interest charged on the loan will directly affect an
individual`s repayment capabilities. Therefore, it becomes quite
imperative for the homebuyers to get at least 3 multiple mortgage
quotes from different lenders and weigh all of them, before settling
for any one of them.
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-
Home
buying is an emotional process and one of the biggest in an
individual`s life. However, one shouldn`t lose one`s conviction
of the reality while shopping around for a suitable house. One of the
most important parts of the home buying process is the calculation of
mortgage affordability that can prevent homeowners from defaulting on
the monthly payments. This may put their house on the brink of a
foreclosure. So, it is better to ask `how much house can I afford`
before taking out a loan rather than going homeless altogether.
In
this case, homebuyers ought to know the basics of calculating their
mortgage affordability prior to applying for one.
Factors
to consider while calculating mortgage affordability
Homebuyers
will have to consider the following factors while calculating their
mortgage affordability:
[*]
Down
payment `
Homebuyers should seriously consider paying a good amount as down
payment while taking out a mortgage loan. Usually, lenders demand a
down payment of about 20% of the principal loan amount. An
individual will qualify for a particular loan program on the basis
of his down payment amount. If a homebuyer fails to make the minimal
down payment as demanded by the lenders, then he has to buy private
mortgage insurance (PMI) as a guarantee against the loan given out
by them.
Household
income `
This is one of the most crucial things to consider while undergoing
a home buying process. It is very important to calculate the total
household income and the probabilities of future changes in income
patterns.
This is due to the fact that any drastic changes
in the monthly disposable income will decide whether or not one can
make the repayments comfortably. This is known as front-end ratio or
housing ratio. Borrowers shouldn`t incur more than 28% as their
monthly mortgage expense.
[*]
Debt
liabilities `
Lenders look for the debt-to-income (DTI) or back-end ratio that is
based on the amount of money spent on making the monthly debt
payments so as to derive the mortgage affordability of a homebuyer.
So, homebuyers need to calculate their overall debt liabilities
still needed to clear out and then proceed with the mortgage
application accordingly.
For instance, they must take into
account costs like child support, alimony, credit card bills,
student loans etc while determining their DTI. It should be noted
that DTI mustn`t be more than 36% of a person`s gross disposable
income.
Closing
expenses `
Expenses associated with the loans are a major determinant of a
person`s mortgage affordability. These costs are incurred by both
the buyers as well as sellers required to process the loan
application. It comprises of attorney fees, survey costs, appraisal
charges and title policy documentation. Here lenders are liable to
provide a good faith estimate to the borrowers of all the costs
attached with the loan. Traditionally, closing costs remain in
between the range of 2-7% of the home`s selling price.
Lastly,
the rate of interest charged on the loan will directly affect an
individual`s repayment capabilities. Therefore, it becomes quite
imperative for the homebuyers to get at least 3 multiple mortgage
quotes from different lenders and weigh all of them, before settling
for any one of them.
