simple ways to find out your maximum approved loan

3 Quick Ways to Determine How Much Mortgage You Can Afford

Copyright 2012 All Rights Reserved. Loanshoppers.net |

2 Issue No 3. Dec 28, 2012 Loanshoppers.net

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To make sure that owning a home is within your financial reach, you need to know how much mortgage you can afford.

1. The Standard Rule of Affordability

More often than not, professionals in the real estate industry say that you can typically handle the payment on a home that sells for two to three times of your gross

income. For example, if you earn $80,000, you should be able to comfortably afford the mortgage on a home from $160,000 to $240,000.

To understand how that rule applies to your specific financial situation, put together a monthly budget of all the costs of owning a home, which will include, insurance, property taxes, maintenance, utilities, and any homeowner association fees, and then add in your individual costs.

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2. What Will Be Your Down Payment?

The more money you put down on a home, the lower your monthly payments will be. If you put down 20%, which most financial advisors recommend, you more than likely avoid having to pay private mortgage insurance which costs hundreds more every

month. So, by putting more down, your mortgage payment will be a lot less. One exception are FHA loans which still require mortgage insurance for the first 12 months even with large down payments.

And likewise, if you bring a small down payment like 3.5% minimum for an FHA loan, you will have a higher loan amount, you’ll pay more interest and you’ll need to qualify for the higher monthly mortgage payment.



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3. Understand Your Total Debt to Income Ratios Lenders generally adhere to their standard debt ratios which as 28/42. Your monthly mortgage payments which cover your mortgage principal, interest, taxes, and insurance shouldn’t exceed greater than 28% of your gross annual income.

Your overall monthly payments for your mortgage along with all your other bills, such as car loans, credit cards, child support, and utilities shouldn’t be more than 42% of your gross income for the year.

Here’s is an example to follow: If your gross annual income is $75,000, multiply by 28% and then divide that number by 12 months to get the monthly mortgage payment of $1,750 or less. Look at the total of all your debt obligations each month including your probable mortgage payment and be sure they do not exceed 41%, or $2,562.50 in our example.

Don’t be discouraged if you are over as some lenders use 45% as a maximum debt ratio rule. Furthermore, it is recommended that you have your complete tax returns reviewed by a loan officer and an underwriter to figure out your maximum loan amount since tax returns can be interpreted differently by



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lenders as the number they use for your adjusted gross income, AGI, could be different.

If you have the available funds, you may want to pay off or down your credit card or auto loans so that your monthly debt is lessened so you qualify for a mortgage. In many cases, underwriters will not count an installment loan (auto) that only has 6 payments or less left but confirm to make sure.

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Resources

http://www.bankrate.com

http://www.zillow.com

http://www.loanshoppers.net

Realtors – http://www.realtor.com

Appraisers – http://www.appraisers.org

Home Inspections – http://www.ashi.org

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http://www.loanshoppers.net/�

http://www.realtor.com/�

http://www.appraisers.org/�

http://www.ashi.org/�

simple ways to find out your maximum approved loan

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