Not only to prospective home owners need to calculate how much they can afford in reality, but the question of down payment, mortgage and home loans is enough to confuse most.
While lenders do have helpful guidelines in place when it comes to determining the approved maximum debt to income ratio but still the debt may be more than what you’re willing to spend. Following are some helpful points that will make the entire home buying process a comfortable experience for you.
What’s the Significance of Down Payment on Buying Power?
You’ll need to determine accurately how much should be put in the house before deciding whether or not you can afford it.
This is fairly obvious; the more you put down on the house as down payment, the more buying power you can enjoy. Additionally, a larger down payment will also offer more options for your mortgage loan.
What Should the Debt to Income Ratio Be?
Only 45% is used (debt to income ratio) as a general guideline by mortgage lenders when it comes to approving a mortgage loan. Calculating the debt to income ratio isn’t difficult. Just add up all debts that have to be paid in a monthly basis (student loans, credit cards, car loans) as well as the new mortgage payment. Make sure to include taxes, insurance and your dues in the proposed mortgage payment.
If the down payment is less than 20%, your mortgage insurance will also have to be accounted for. The best way to get there is to divide total debt by gross monthly income that comes before taxes.
What Payment Are You Comfortable With?
Even if you do get approved for a mortgage up to 45% debt to income ratio, it doesn’t mean you’ll be comfortable with making that payment. Before going to a mortgage lender, make your own calculations and determine a comfortable amount of mortgage that can be paid while still being able to enjoy a good lifestyle. Use a mortgage calculator and don’t forget to count your taxes, home owner’s dues and mortgage insurance (if applicable).
Remembering to follow all of the above to the letter can be difficult, especially for first time home buyers in Phoenix. Your best bet at finding a good property and at a good price is by hiring the best local real estate agent in Phoenix, Arizona.