How Much ‘Home’ Can We Afford?
The question is not about the ‘size’ of the shoe but about how well the shoe fits!
How do you spend your money? First, you need to understand how you spend money in order to make a good decision about buying a home. It is important to understand your overall debt before looking at buying at home. This includes monthly living expenses, credit card debt, loans (including student loans, car payments, unsecured debt) and your personal expenses (spending money).
What lending options are available? 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.
Debt Ratios: 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). 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. It is important to understand what your debts are and how the Lenders determine these factors.
So, how much home can you afford? 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.