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What Mortgage Can I Afford?
What Cape Cod Mortgage Can I afford?
Buying a home versus renting is a big decision that takes careful consideration to ensure you can meet your monthly mortgage obligations over the term of your home loan.
While there are several biased sources that can make arguments for or against owning a home, most home buyers may base their ultimate decision about whether or not to buy real estate in Cape Cod based on their financial security. Cost, qualifying, freedom, maintenance and security are some reasons for renting, as well as owning.
What You Can Afford
Mortgage banks look at financial reserves, employment history and income compared to current and future liabilities.
With that being said, your gross monthly income to consider would be any regular and recurring income that you are able to put down on your documents. Keep in mind, in most cases if the income is unverifiable —in other words—does not show up on your tax return, many banks will make it challenging to obtain a mortgage loan for most traditional or government insured mortgage programs.
However, if you have alimony or a lottery payoffs, they may allow you to list those unearned sources of income. A few other things you may list as well can be income-producing assets such as real estate or stocks, because the income for these assets typically can be calculated with an estimate, but still check with an approved loan officer on the rules that they may have in place.
Monthly Debt Calculation
Cape Cod mortgage banks in Massachusetts compares a borrower’s income to monthly liabilities, which could include:
– Credit Cards (For revolving credit cards, it is best to use the minimum monthly payment in calculations).
– Installment Loans (current monthly payment)
– Car Loans
– Personal Debts
– Alimony/Child Support
Alternatively, banks may be willing to exclude any debts that are set to be paid off within a few months, depending on the mortgage program you are applying for. Any debt that will be paid off in 6 months may not be necessary to include.
Banks apply what’s called a Debt-to-Income (DTI) ratio to establish how much mortgage money to lend to a borrower.
Monthly Housing Expense – monthly payments towards taxes/insurance
These numbers typically should not exceed 28 percent of your monthly income. If you are unsure of how much your tax and insurance expenses are, what you can do is estimate it to being 15 percent of your income going towards these obligations. The left over amount can be utilized for interest repayments and principal.
Additionally, make sure that your monthly housing expense and total monthly debt altogether does not exceed 36 percent, because in most cases this will exceed the particular lender’s underwriting guidelines and can disqualify you of the loan.
These guidelines may vary for each borrower as it is also based on down payment as well. Wo if you are borrowing less than 80 percent and offer a large down payment the ratios to qualify may not be too much of an issue. So before you lose all hope in qualifying for one particular loan there are still many out there with different guidelines.
A good thing to remember as well is that with adjustable rates you may have a lower payment in the beginning as opposed to a fixed rate term. If you make a large down payment your monthly payment may be lower.
