How to determine a Mortgage you can reasonably afford.
In the market today new buyers have a lot of choices in their inventory. With the current low interest rates for a mortgage it is a good time to buy a house. As guidelines lenders commonly use a few basic formulas to determine how much of the mortgage you can reasonably afford. The qualifying ratio formulas estimate the amount of money you should spend on mortgage payments in relation to your income and other expenses.
To qualify for conventional loans monthly housing costs including the mortgage principal, interest, taxes and insurance should not exceed 26 to 28 percent of your gross monthly income. For example, if your annual income is $45,000, your gross monthly income is $3,750. $3,750 x 28 percent = $1,050. So you would probably qualify for a conventional home loan that requires monthly payment of $1,050.
When planning to buy a home, it is important to select a home that would satisfy all your family needs in compliance with your budget. Do not buy at the maximum price that you can possibly afford. Allow enough extra money in your budget for expenses such as maintenance, utilities, fees, and unexpected repairs. Ask you Realtor to collect information about utilities and service fees for the property you are considering.
The bottom line, if your finances are in decent shape, you could look for a home priced at two to three times your gross yearly salary. The mortgage calculator can give you general idea of how much of a mortgage you might qualify for. You must talk to a lender or mortgage broker in person for more accurate figure.
Don’t Get Discouraged
If your loan application is rejected, find out what the problem is and how it can be resolved. Maybe you need to look for a less expensive house, or save more money, or pay off some debts, or find an affordable housing and community programs you might be eligible.
When you apply for a mortgage loan, every piece of information you submit must be accurate and complete. Anything less is considered loan fraud.
When you buy a house, you enter into a long-term financial obligation. You fill out papers and sign legal documents based on those papers. It's important that you understand your responsibilities so that you won't be a victim, or a participant, in a fraud.
Before you sign anything, read and make sure you understand it.
Accurately report your income, your employment, your assets, and your debts.
Make sure you understand your loan terms and your rights under the law.
Do not change your income tax returns for any reason.
Be truthful about money gifts.
Tell the truth about your credit problems.
Be honest about your intention to occupy the house.
Never provide false documentation.