Are you ready for homeownership? Look at your current situation and determine if:
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You have a continuing and reliable source of income prior to applying for the loan.
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You have a credit history that shows you’re ready for homeownership.
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Your total debt is manageable and you can afford to take on the costs associated with homeownership.
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You have money saved for a down payment and closing costs.
To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate – the actual number will vary based on factors such as your debt and credit history.
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.
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Housing Expense Ratio
Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you’re looking to buy. -
Debt-to-Income Ratio
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don’t forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.
Clic here to see my current list of reputable lenders who would be happy to assist you.
This sometimes takes as little as 20 minutes in which they will ask you a few basic questions and request to run a credit report.
Getting a pre-qualification determines your Buying Power and sets reasonable limits for your current situation.