How much financing can you afford

Like it or not, there are a couple of guidelines bankers, and mortgage lenders use to determine how much loan you can afford.

One guideline is the Payment to Income Ratio. This guideline compares your income- or your total household income-to the amount of mortgage your considering.

To calculate the “payment” part of the formula, the lender will take the mortgage payment (principal & interest) and add it to Propeety Taxes and Insurance. Hence the term “PITI” (principal, interest, taxes and insurance).

Usually lenders will loan up to 28% of your total household income.

But before your home free, there’s something else you need to know..

It’s called the Debt to Income Ratio. Debt refers to ALL, the major monthly payments other than your mortgage (PITI). To arrive at this amount, the lender will consider…

Your car payment
Your credit card debt & payments.
Any IRS liens or payments due.
Any other payments and debts you have (boat, second home, etc)

Then they’ll compare your total debt to your ability to make current payments with your new home loan added into the equation.

Now here’s the “catch”. Each mortgage company sets diffferent limits on your Debt to Income Ratio, which it is critically important to find the right lender!

Don’t follow the “canned” financial advice like you see on TV. Most of the advice is “rule of thumb”, and designed for the lowest credit rating and the highest rates.

Think about this….

If you spend two or three days to find a loan that saves you $40,000 to $150,000 or more overs it’s term, your time is WELL WORTH SPENT! Doing a little homework on your own will literally save you thousands over the term of your loan.

If your in the market for a new or re-sale home in the Triangle area of North Carolina call us today at Jeff Dicks Real Estate – 919-793-4730

We look forward to putting our award-winning team to work for you

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This entry was posted on Sunday, May 22nd, 2011 at 12:26 pm and is filed under Cary Homes For Sale, Cary Real Estate, Heritage Wake Forest, North Carolina Golf Communities, Raleigh Homes For Sale, Raleigh Mortgage Updates, Raleigh Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “How much financing can you afford”

  1. Ricardo Cobos says:
    May 23, 2011 at 6:07 am

    Undisclosed debt is the single greatest contributing factor to mortgage foreclosure (apart from having a mortgage).

    Among the usual undisclosed dents are;

    Child Support/Alimony/Separate Maintenance
    Mortgages for properties that are in a spouses name who is not a party to the new mortgage.

    One of the biggest challenges these days that I see with First Time Home Buyers are under-disclosed student loan debts.

    For example just this week a first time home buyer disclosed $25,000 in student loan debt when in reality it was $44,000!

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