Buying a house qualifies as one of the most significant events in a person’s life. With rent prices soaring to historic highs, you can now buy a house with a mortgage payment that is likely smaller than your monthly rent payment. Owning your own home comes with many benefits. Every monthly payment you make towards your mortgage reduces a proportionate amount of principal every month, increasing your ownership share. As time goes on , the principal payment gets bigger and the interest payment decreases. There are always questions like how much home can I afford etc.
How Much House Can I Afford
Now that you decided to buy a house, the most important consideration is how much you want to pay for your home.. Most people do not think in terms of the entire purchase price of the home, but rather focus on the monthly payment. The monthly payment is a very important factor considering this will determine how much money you have left over. After you pay your monthly mortgage payment, you should have a considerable amount left over so that you can meet all of your other obligations, and then still have some left over so that you can do the things that you love to do.
Qualifying For a Home
There are two important calculations that lenders look at when you apply for a loan. People also looking for mortgage payment calculator online. They are looking at front-end debt-to-income ratios and back end debt-to-income ratios. What are these and how are they calculated? Why is this important? The front-end debt-to-income ratio is calculated using your monthly mortgage obligation including principal, interest, taxes, and insurance. This number is divided by your gross monthly income. Gross monthly income is your pay before any deductions are taken out. The end result is the percentage of how much your house payment can be in relation to your monthly income.
The allowed percentages vary and can go up to 46.9% depending on the type of loan. Some loan programs do not use the front end ratio. The back end debt-to-income ratio is calculated using your monthly house payment(PITI) plus all of your other monthly obligations, excluding gym memberships, life insurance, etc. Mostly everything on your credit report such as car payments and credit card payments are included in the back end ratio. This number is divided by your monthly gross income to get the back end debt-to income ratio. You can qualify for a home with a back end debt-to-income ratio all the way up to 56.9%. If you surpass the debt-to-income percentages there are options, such as a larger down payment or finding a lower-priced home, to paying off some debt.
There are other factors involved in qualifying for a home loan. Besides debt-to-income ratio, you will need to have stable income and verifiable rental history. Verifiable rental history requires 12 months of documented proof of payment such as cancelled checks, copies of money orders with bank statements showing the cash coming out to purchase the money orders, or a letter which must be from a property management company, stating that all rent payments have been paid on time.