How much home can I afford?

The purpose of todays article is to focus on?how a lender will qualify you.?

There is a very easy way to determine how much home you can afford. First lets determine how much of a payment you will qualify for. The basic premise is that all lenders use a debt-income ratio to evaluate your credit worthiness. A person with a high credit score can still be denied for a loan, or forced to accept an easier qualifying, higher rate product because the income didn’t qualify.

Generally, lenders like to see debt ratios of lower than 38%. This means all credit reported debt (credit cards, mortgages, cars, etc…anything that shows on credit report as monthly debt) can be no more than 38% of your gross monthly income.

Monthly gross income X .38 = maximum total debt allowed

Note: Groceries, utility bills, etc are not considered in the ratios. Only credit reported items will count towards this ratio. So, to determine what you qualify for use this example:

10,000 mo income X .38 = $3800 debt allowed

The above example shows an individual with $10K gross monthly income is allowed $3800 in total credit reported debt. Lets assume that this borrower has a car payment and credit cards totaling $1200. Here is how this will be viewed:

$3800 minus $1200 consumer debt = $2400 remaining for monthly mortgage, property taxes, and insurance.

Your home purchase price will be further determined by how much you are putting down. The bottom line is you can afford up to a $2400 total payment and still qualify for the better rates.

?There are loans available that will allow as high as 55% debt ratios and many that do not require any ratios. Obviously, there is a cost for this option and it will be in rate and fees.

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