So you want to buy a house eh? And you want to get a mortgage loan to cover the bulk of the cost. Well, this is a common way for people to purchase a new house and if you are going to get approved for a mortgage you will fist have to meet with a lender. This lender will go over all of your finances carefully. They will check your credit history to see if you can be trusted to repay the money as well as go over your gross income. The mortgage lender will also want to know how much of a down payment you are able to put down on the home. In order to find out how much you can afford to spend on a new home you are going to be using the concept of debt to income ratios.
There is more than one way to do debt to income rations and one of them is to determine the front end ration by finding what your gross income is each month. This is the amount that you earn before the taxes are deducted from your salary. Your mortgage payment should be under 28 percent of your gross income and this percentage is including the interest on the mortgage payment. Then you need your housing expense and to get that all you have to do is multiply your yearly salary by 0.28 and after than divide it by 12. This final sum is the most you can pay towards your housing expense.
Now your back end ration is what you need to find to cover all of your debts. When I say all your debts I mean all your debts including credit cards and other loans. All of your debts together, including the mortgage should not be above 36 percent of your gross income. To find the final numbers for this you will do much like in the previous example but instead of suing 0.28 multiply 0.36. This will finally give you your highest possible debt to income ration. Do not go above this number. Just remember that your gross income is your income before tax not after.
Average debt ratios tend to be higher than the recommended percentages. For example conventional loans usually have anywhere from 26 to 28 percent of ones monthly gross income and when you put the housing as well as the debt cost you are generally looking at anywhere form 33-36 percent of your gross income. And if you are dealing with FHA loans you will be paying even more. With these loans you will have more like 29 percent towards housing costs and with housing and debt you are looking at 41 percent.
Lenders will always take into consideration the prices that you will have to pay for insurance and your taxes when figuring how much money you have to put into a new house. The property taxes that you have to pay each year are worked into your mortgage payments so that is why lenders will always work to find out just what your taxes will be each year. If you do not know this number to give to them you can ask your real estate agent. He or she should be able to tell you what other people in your neighborhood are paying towards real estate taxes each year.
Before you can get a mortgage you will have to get homeowners insurance. To get an estimate talk to an insurance agent. Make sure that you find out if you should have flood or fire insurance due to the area in which you live as these will affect your insurance estimate. And remember that if you don't have at least 20 percent of the cost of the home to put down you will have to get additional insurance. This will be mortgage insurance. All insurance payments will cause your monthly payments to be higher.
Martin Lukac, represents http://www.RateEmpire.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit http://www.RateEmpire.com today
