If you want to know how much you can afford to pay on your mortgage, then it is important that you first figure out how much you actually make. If you are earning a lot more than you can afford, then it may be difficult for you to be able to get a loan. However, there are several different ways to figure out how much you can afford to pay on your monthly mortgage. You can also find out what percentage of income you can use to finance your house.
Monthly mortgage payment
It can be tough to decide what percentage of income to spend on your mortgage. However, this is an important factor to determine if you can afford to buy a home.
One rule is to not spend more than two-thirds of your gross income on your mortgage. You can do this by dividing your gross monthly income by two-thirds to find the amount that is affordable. If your debt to income ratio is high, try to pay off your extra debts and improve your credit rating.
There are also other rules that can help you figure out what percentage of your income you should spend on your mortgage. These include the 28% rule and the 28/36 rule.
The 28% rule states that you should not spend more than two-thirds of you gross income on your mortgage. This includes principal and interest, insurance, taxes and property taxes.
Household expenses vs debt
Getting your hands on a new home is a rite of passage for many. Aside from the actual mortgage, there are myriad other expenses to consider. These can include homeowner’s association fees, property taxes, homeowners insurance, and of course, the monthly mortgage payment. The size of your family, your city, and even your budget can determine how much you can realistically spend every month.
While there are no hard and fast rules, it’s likely that a good percentage of your household’s expenses are discretionary. That said, you’ll want to pay attention to the following: what you’re buying, your credit rating, and your debt-to-income ratio. For example, you’re not going to get a new home if you can’t afford it. Likewise, lenders don’t want your house foreclosed on either. In order to avoid the financial disaster that is foreclosure, it pays to be smart and wise about the real estate game.
Alternatives to the 28% rule
The 28% rule is the name of the game when it comes to your mortgage. Its many incarnations may be found in various forms, from the “frugal” to the “flying pig”. Some lenders are a bit more lenient, while others will stretch the rules to get you to the finish line. Regardless of the lender, a good mortgage broker will steer you toward the best loan available. For instance, if you are looking for a mortgage with low interest rates and a low down payment, you aren’t likely to be turned down.
To make the task of obtaining a mortgage easier on the wallet, a number of high yield lenders have emerged. These include the Big Banks, the new wave of credit unions, and smaller regional banks. As with any other loan, these lenders have their own set of standards. They can be very specific, especially if you are a first time homebuyer or have a poor credit score.
Reyes recommends three times your salary and less than 30% of your monthly income
Mortgage expert Mark Reyes recommends that you only apply for a mortgage that is three times your annual salary. This is important because you should not get into too much debt. There are many factors to consider when calculating the amount of debt you can carry. It is also helpful to keep the mortgage payment under 30% of your monthly income. In some cases, you may need to make a bigger mortgage to purchase a home. However, this does not mean that you need to go into a bigger loan.
For example, if your household income is $5,000 pre-tax, you are allowed to borrow up to $1,800 per month. This is less than a third of your gross monthly income, but it is still a lot more than you might have expected. Likewise, if your housing cost is more than half of your monthly income, you will likely be considered too risky by lenders.