Home Buying, Staying Within Your Budget When Buying a Home
While many people have come to regret buying too much home when the foreclosure process started, no one regrets saving their money. By biding their time and trading up safely and securely as their needs and ability to pay higher mortgage payments increased homeowners can protect their finances and lead fuller more rewarding lives.
Before you fill out the real estate forms to get a mortgage, and especially before you start shopping for a home, you need to calculate how much you can really afford in monthly mortgage payments. If you don't know this information you can put yourself in serious financial jeopardy, or at the least, let yourself in for serious disappointment when you find out you just cannot afford the houses you've been looking at.
To calculate the amount your can safely afford to spend on your home loan you need to know three numbers. Your monthly income, the total amount of debt you currently carry, and the percentage of your income you can safely commit to housing.
Lenders are going to look at your debt-to-income ratio. The percentage of your monthly income consumed by all of the debt that you carry is your debt-to-income ratio. If you have an income of $4,000 per month, and $400 in monthly payments on outstanding debt, your debt-to-income ratio would be 10%. Lenders will not want to see this ratio, including the new mortgage loan you are applying for rise above 36% in general. Some areas with higher housing costs, and some special types of mortgage loans will allow for higher ratios than this.
Another important number is the percentage of your monthly income spent on housing costs. The most common number used to benchmark this is 28%, though the acceptable level will also vary by location and local housing markets and trends. Exceeding either of these numbers can be dangerous for you as a homeowner. If you sign legal documents for a loan that extends your debt-to-income ratio to a higher number and then something happens such as rising interest rates that take the ratio even higher, you could have difficulty making the payments. Likewise, you may have a low debt ratio and try to finance a larger mortgage taking up a larger portion of your income. But then if your situation changes and you need to take on more debt for another large purchase such as replacing a family car, you might have a hard time paying for it.
About the Author:
Ben is an expert in writing about legal forms and documents that may help you when your in the search of the right legal document. He writes many articles about forms ranging from, real estate forms, power of attorney forms, landlord tenant forms, and most any legal form that your searching for.
Author: Ben