How Much ‘Home’ Can We Afford?


Buying a Home

The question is not about the ‘size’ of the shoe but about how well the foot fits!

First off, it is important to understand your overall debt before looking at buying at home. This includes everything from your regular monthly living expenses, to your credit card debt, loans (including student loans, car payments, unsecured debt) and your personal expenses (spending money).  You need to understand how you spend money in order to make a good decision about buying a home.

Once you have your own household budget set up, you will be able to look at what is available for your purchase options. Lenders look at different ‘debt ratios’ to understand if the borrower (you) can afford a mortgage payment. Different things are taken into consideration including current rent (that will go away once a house is purchased) and debt/expenses that are recurring (as noted previously).  These ratios help lenders to understand your debt and your likelihood of paying your mortgage on time.

When lenders look at your debt ratios, they use 2 different rations. Front-End Ratios, which are your mortgage principal payment (including taxes and insurance) and compare that to your income.  This creates one kind of ratio for loan determination. The Back-End Ratio is your other monthly expenses (not including groceries and spending money). The Back-End Ratios include all of your monthly payments combined (mortgage, car payment, CC payments, student loans).

These numbers create ratios to help the lenders. If your Debt to Income ratios are too high, lenders may see that you don’t have much left over for your monthly groceries and everyday living, so it is important to understand what your debts are and how the Lenders determine these factors.

We have several calculators to help you determine your ability to obtain a mortgage at http://blackdiamondmortgage.net/Calculators/Menu.aspx but, our team is also here to help you in this process. Contact Us with your questions.