Factors To Consider When Applying For A Home Mortgage
Owning a home can be a sign of independence and success. It allows you to build up equity and the mortgage interest and property taxes are tax-deductible. What can you do to make a home affordable for you?
Reputable lenders look at a list of criteria to decide how much they’ll loan you.
This List Includes:
- Credit score
- Existing assets including cash
- Car leases or loans
- Credit card balances
- Debt consolidation loans
- Home equity loans
- Installment loans
- Student loans
- Other monthly debts
- Size/source of your down payment
If you’d like to get an idea of what you can afford before talking to a lender, here are a few tools you can use to decide whether a home is within your budget.
Here Are Some Guidelines:
- As a rule of thumb, your house hunting budget shouldn’t be more than 2.5 times your pre-tax annual income. If you earn $50,000 a year, your budget for house hunting should be around $125,000.
- Your Housing Expense Ratio, which is principal, interest, taxes and insurance shouldn’t be more than 25% to 28% of your pre-tax monthly income.
- Your Debt-to-Income Ratio should be no more than 36% of your pre-tax monthly income. This is the ratio between how much you owe and how much you earn.
- Use an online calculator to figure how much home you can afford.
“Qualifying for” and “can afford” are two different things. Shopping for a home within your budget will save you a lot of heartache now and in the future.