Irvine, CA (PRWEB) October 09, 2013
Before launching a first-home search, deciding on must-haves and selecting a neighborhood, first-time homebuyers are wise to work with a local mortgage specialist to determine both a maximum monthly payment and a comfortable monthly payment. Both of these hinge on the home's sales price plus other factors, including the buyers' credit history.
"You're delving into what will probably be the largest investment of your life, and you're wise to decide on your house buying budget first," said Keith Reise, sales manager at Intelliloan. "How much home can you afford? The short answer is: it depends."
The monthly home payment for two buyers whose homes both cost $400,000 may vary significantly depending on their financial circumstances. Contributing factors include the buyers' total income, other outstanding loans they already have (their debts), their savings and other assets, how much down payment they can make, and a few other things.
Most lenders allow a 28 to 31 percent "debt-to-income" ratio, meaning that a house payment can be up to 31 percent of gross income. Additionally, they look at total debt-to-income ratio (DTI) including a new house payment plus car payments, any student loans and other debt such as credit cards, and typically allow no more than 36 percent of the borrowers' gross income. The maximum debt-to-income ratio (DTI) may vary, depending on the type of loan chosen by the borrowers.
In other words, mortgage lenders look at income, assets and the amount of down payment available, but they also look at overall credit rating as well as liabilities and obligations, such as child support payments, potential property taxes, insurance premiums and so forth.
"One other factor that can't be overlooked: how much will you FEEL comfortable borrowing?" said Reise. "After all, you want peace of mind that you will be able to make your payments without a big stretch. None of us wants those middle-of-the-night worries as to how we'll make next month's house payment. So your remaining income after debt and taxes should be adequate to cover living expenses and savings goals. It's also wise to have rainy-day cash set aside to cover any large, unexpected home repairs or other financial emergencies."
Reise outlined the common guidelines to help a buyer determine how much they should spend on a new home. Start with monthly gross income (before taxes). Multiply that dollar figure by .36 to determine the maximum monthly debt that should be incurred, including the new mortgage payment. Call this "calculation A." Now multiply that same monthly gross income dollar figure times .28 to determine the maximum monthly mortgage debt that should be incurred. This is "calculation B." Now subtract calculation B from calculation A: does this amount completely cover all other debt incurred monthly?
"When determining how much home buyers can afford, they need to take into account these specific factors," Reise explained. The list includes:
- Gross monthly income
- Monthly debt: car loan, student loans, credit card debt, child support payments and other debt
- Estimated down payment amount
- Estimated monthly property taxes and insurance
- Interest rate (%)
- Loan term (in years)
"The Wall Street Journal provides a good online calculator to help determine how much new borrowers can comfortably afford to borrow for their new home," Reise added. "As you're calculating, make sure you include all debts, including any private or family loans. And again, be sure to leave yourself a savings cushion every month, because you'll want to be able to set money aside for those unexpected house or car repairs, medical needs or other unforeseen needs, in addition to building up your long term savings."
Metropolitan Home Mortgage, Inc. DBA Intelliloan™ is a direct mortgage lender based in Irvine, California and was established in 1993. Intelliloan™ is approved by HUD, FHA and FNMA, and is licensed in 18 states. Intelliloan is an Equal Housing Lender and has been a member of the Better Business Bureau since 1999 and has an A+ rating. NMLS #3290.
For more information, go to http://www.intelliloan.com or call 877-263-8499.
Metropolitan Home Mortgage, Inc. DBA Intelliloan™ is a California corporation headquartered at 4 Park Plaza, Suite 800, Irvine, California 92614 and is licensed or registered or exempt from licensing to conduct business in the following states: Arizona Mortgage Banker license #0907461; licensed by the California Department of Business Oversight under the California Residential Mortgage Lenders Act, license number 4130924 and 6036970; Colorado Department of Regulatory Agencies, Division of Real Estate NMLS#3290; Connecticut Mortgage Lender License #ML-3290; District of Columbia #MLB3290; Florida Mortgage Lender Servicer License #MLD423; Illinois Residential Mortgage license #MB.6759473; Maryland Mortgage Lender License #06-20616; Massachusetts Mortgage Broker/Lender License #MC3290; Michigan 1ST Mortgage Broker/Lender License #FL0015148 and Michigan 2nd Mortgage Broker/Lender License #SR0015343; Minnesota Residential Mortgage Originator License #MN-MO-40019736; Nevada Mortgage Broker License #3759; New Jersey Residential Mortgage Lender License -- NMLS#3290; Oregon Mortgage Lending Branch License #ML-3692; Pennsylvania Mortgage Lender License #40659; South Carolina Mortgage Lender/Servicer License #MLS – 3290; Virginia Broker/Lender License #MC-5718; Washington Consumer Loan Company License #CL-3290. NMLS#3290. All rights reserved. © 2013.
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