Are you thinking about buying your first house? Are you in the market to take out a home mortgage loan? With the record low rates on home loans, most prospective homeowners are considering this as the best time to invest their dollars on a real estate property. Although taking out a home mortgage loan might be one of the most daunting tasks, yet if you take the wrong steps, the entire experience might turn to be bitter. Calculating your mortgage affordability is extremely important when it comes to taking out a home mortgage loan and if you make the mistake of choosing the wrong home loan which is beyond your affordability, you might not be able to bear the monthly mortgage payments throughout the term of the loan. It is best to check around at your personal bank or credit union and see what interest rates they are offering. You may also want to ask them what documentation you would need to bring in for them to get you a pre approval letter.
Mortgage affordability tips before you set out for your dream home
- Consider your annual income: When you wish to determine how much mortgage you can afford, you have to calculate your household income. Apart from calculating your annual household income, you need to consider all the income changes that might impact your ability to make payments. What if a child comes into the picture and your partner becomes a stay-at-home parent? All such changes should be taken into account.
- Consider your total debt level: While calculating your mortgage affordability, you should also consider the total amount of debt that you currently owe. The mortgage lender will check your debt-to-income ratio or the DTI ratio. The lower is your DTI ratio, the lower will be the interest rates. When you approach a lender with a low DTI ratio, you can have more money that you can pay towards your mortgage loan. The debt amount will also help you determine the total amount of loan you may get.
- Consider the down payment: Another factor that you need to consider is the down payment that you can make towards the mortgage loan. Usually, mortgage lenders demand a down payment that is equivalent to 20% of the loan amount, unless it’s an FHA loan. Therefore, the amount you’re able to pay down is a vital factor that you should consider while determining your affordability.
- Consider amortization period: In case you’re simply trying to keep your regular mortgage payments low to comfortably fit the payments into your budget, you can probably apply for a mortgage with a longer amortization period.
All the above mentioned points are the areas that you have to fill up when looking at a loan and an online mortgage calculator will help with this. You just have to download it from an authentic website so that you may trust the results and base your decisions of taking out a home loan within your affordability. Make the right calculations by filling in the blanks with the right answers.
So, before you take out a home loan to buy a new house, you should assess your affordability. Boost your credit score and lower your DTI ratio in order to get the loan within your means.