It’s a valid question… especially those looking to buy their first home. The excitement of first home buyers trying to find their dream home in un-paralleled. Though the fear of ‘Am I doing the right thing? Do I have the money? Can I afford this?’ can be a nerve racking experience. Below are tips, and suggestions, of finding out How Much Of Your Income Should Go Towards A Mortgage?
Find your TRUE Monthly Costs:
To get a more in-depth look of your potential mortgage payment try to find a mortgage calculator that includes costs like Home Owners Insurance or Property Taxes. Try out Trulia’s mortgage calculator, and click “Advanced.” If putting less then 10% down you may also need to include PMI (Private Mortgage Insurance) for a more realistic cost assessment. To get an accurate idea of what you may expect for property insurance rates and property tax, call up and get a quote for homeowners insurance in your area, you can also look at property tax rates online.
Know Lenders Legal Limits:
As of 2010 the Dodd Frank Act puts limitations on lenders so they cannot under-write a loan unless they can determine you can reasonably pay it. This act requires that they do not approve loans that take up more than 35% of your income. This is calculated by looking at Credit, Job History/ Stability, Income and Debts… calculating your Debt to Income Ratio.
As stated above lenders are required to not approve a loan that takes up 35% of your income. Though, the 28% rule says you should be even more strict when it comes to buying a home. We suggest no more than 28% of your income be tied up with payments. This is mainly because “life happens:” You lose your job, get pregnant, waterline breaks…the list goes on. Having a little extra financial freedom is for those life moments when you need a backup. An easy way to find this out? Take your monthly income multiply by 28 and divide by 100. This will give you how much you should be spending monthly.
For other lending, or real estate questions please write me below. I would love to hear from you.