How much house can you afford?
This is a question every first time homebuyer needs to ask themselves. There are many home affordability calculators on the web. Any of them can be used to input your income, monthly debt payments, property taxes and insurance, the interest rate you expect to pay and the loan term.
Your mortgage lender will mention a couple of ratios that are very important in the loan approval process. The front-end debt ratio is commonly known as the mortgage-to-income ratio. The front-end ratio is figured by dividing your monthly housing expense by your monthly income. Staying within standard limits help you avoid taking on too much debt. The standard maximum front-end limit used by conventional lenders is 28 percent. When you apply for a new loan with a standard 20-percent down payment, the lender generally approves you for a request that does not exceed this limit. The FHA, which offers government-backed loans with 3.5-percent down payments and less restrictive credit requirements, uses a 29-percent front-end maximum.
The back-end ratio is commonly known as your debt-to-income ratio. This is a broader look at your current debt position and your ability to take on home loan debt. Car loans, personal loans and credit card debt payments are added to your projected mortgage to figure out how much new debt you can afford. It’s your total monthly debt expense divided by your gross monthly income. The standard maximum limits with the back-end ratio are 36 percent on conventional loans and 41 percent on FHA loans.
Now you know how much you can afford, so give me a call today. I would love to assist……