Banks and mortgage brokers use several different ways to decide how much home loan you can qualify for.
The first step is to declare your income and any other assets you have. Then they'll want to know about debts and obligations and the size of the down payment you hope to make on your new home.
Given all this information, there are two ratios used to determine your loan limits. The first number is 28%. This means that your total projected housing costs (mortgage payment, taxes, and insurance) should be no more than 28% of your gross monthly income. As an example, a family with an income of $10,000 per month could afford a monthly housing cost of about $2,800.
The good news is that there's a certain amount of flexibility allowed. A lender might make a larger loan if you make a larger down payment since it means that you are putting more of your own money into your investment and are less likely to default. There are also special programs available to first-time buyers and several ways to structure loans that make them easier for buyers who are just starting out and expect their incomes to increase. Adjustable rate mortgages can also make sense for some buyers, depending on how long you intend to stay in your home, whether rates are going up or down, and a variety of other factors.
Reduce Your Debt
The other number is your total debt (student loans, car loans, credit cards, etc.). Lenders analyze the ratio between your total monthly obligations and your income to help them decide how much money you should allow for monthly housing expenses.
Pre-qualifying for a home loan is an important first step in the home-buying process since it means that any purchase offers you and your realtor present will be taken seriously. Ask your real estate agent for a list of recommended lenders in your area.
To get pre-approved for a home mortgage loan, we recommend using The Mortgage Guys at Spruce Mortgage. You can visit them on the web at www.vermontmortgageguys.com
Questions? Contact us today!