 | Randy Vickers is the owner of Priority Mortgage Corp of Wichita, which opened in Jan. 1989, is the oldest locally owned mortgage company in Wichita. Randy has been in the real state business since 1983 and is a licensed real estate broker as well as a licensed mortgage broker. Priority Mortgage Corp of Wichita KS Lic #1996-0122. Randy can be reached at 316-721-7700 |
Real Estate
2006-11-01 16:01:00
How much mortgage can you afford?
ANSWER: One of the best ways to determine how much to spend on a house is to look at your income and expenses monthly just exactly the same way a lender will do when you apply for a new loan to buy that house. It's really pretty simple. First, your credit score will be pulled online, and certain determinations will be made from that information. And if your credit score shows that you are considered "conforming", then you are showing that you are able to manage your money and indebtedness in an acceptable way to the lender. If your credit score is lower, then there are a lot of other alternatives that will usually allow you to get a loan to buy your own home rather than continuing to throw money away in the form of rent to a landlord. You should only do that if there is no other way. The lender will also show you how to fix any bad marks you may have on your credit report so that you can raise your credit score for a better rate in the not too distant future.
On a conventional loan, one that is not insured by the government, your monthly housing payment including principal, interest, taxes, and insurance, should not exceed 28% of your total gross, or pre-tax income each month. Your total monthly expenses shouldn't exceed 36% of your gross income monthly. This would include the mortgage payment, car payments, utilities, credit card payments, etc. These are ideal guidelines, and there are times when exceptions are made to these parameters.
Let's assume you and your wife or husband make about $50,000 per year gross income, before taxes are considered. Your total debt limit would be 36% of that, or $18,000 a year, which equals $1500 a month. Of that the most your house payment could be is about $1167 a month. If all of your other regular monthly payments were to total about $335 a month, then you would be "qualified" for a new conventional loan based upon those ratios. On the other hand, if your other monthly payments totaled about $500 a month, then you would be qualified for about a thousand dollars a month for the house payment. With a total family income of about $75,000 a month, then the 36% parameter gives you about a monthly figure of $2250 a month for all payments, and would include a $1750 monthly amount for the house payment. At $100,000 a year family income the qualifying amount to have for all monthly payments is about $3,000 a month with about $2,333 for the mortgage payment limit. As you can readily see, the 36% ratio for all debts is usually more important than the 28% ratio for just the house payment.
So, if you will narrow down to a mortgage payment that you can comfortably make, then just look at homes in the price range that will give you that monthly payment, and you should have no problem being qualified by your lender. If you determine that you can make a monthly mortgage payment of $1500 a month, then just look at how big a loan that will translate into considering current interest rates, cost of homeowners hazard insurance, special assessments, and the other variable items. More next month...
