Are you thinking of purchasing a new home? Before you take the plunge into the homeowner’s world, make sure you ask yourself a simple question, ‘How much house can I afford.
Most homeowners forget to ask themselves this simple question and these are the ones who face foreclosure, not being able to manage their monthly payments on their mortgage. In order to avoid facing a foreclosure, it is imperative for a person to determine his affordability in order to stay safe. Have a look at the factors that lenders take into consideration before giving you a mortgage loan.
Your annual income: The first thing that is seen by most mortgage lenders is your annual income. This implies whether or not you will be able to make your mortgage payments on time. If you do not have a sufficient amount of income required by the lenders, they will not lend you an affordable mortgage loan. You may qualify for a loan with sky high interest rates as you’ll be considered as risky. Make sure you check your income and look for ways to boost your income level if you think you will not qualify for an affordable loan.
Your credit score: One more important thing that the lenders take into consideration is your credit score. Your credit score includes your payment histories and your financial history. A poor credit score may mean that you cannot handle your finances well and make late payments. This is a negative factor and therefore, if you have a poor credit score, your lender will not offer you an affordable mortgage loan. Thus, try to repair your credit if you do not have a good score.
Your down payment: How much you pay down while taking out a mortgage loan will also determine the rates that you obtain. The mortgage lenders usually demand a down payment of 20% of the entire loan amount that you’ve qualified for. If you pay less than 20%, then you require paying PMI or Private Mortgage Insurance that simply increases your monthly mortgage payments. Therefore, save money so that you can always make a 20% down payment, thereby, avoid the possibility of having to pay PMI.
Your debt-to-income ratio: How much unsecured and secured debt you’re owing presently, is also an important factor that is taken into consideration by the lenders. If there’s too much of debt that you owe in accordance with your monthly income, you will be considered as a risk borrower. It is seen that your financial obligations including your mortgage and auto loan payments should not surpass 36% of your monthly income.
Therefore, if you’re new in the field of taking out a mortgage loan for financing your house, make sure you ask yourself ‘How much house can I afford’ before seeking the loan. Consider improving on all the factors mentioned above so that you can qualify for the best and most competitive loan in the market.
