One of the biggest questions when buying a home is “how much can I afford?” Once this question is answered, it’s much easier to narrow down your home shopping wish list to fit your budget. There are several parameters that go into factoring how much of a mortgage you can afford.
Debt-to-income ratio or DTI: Your DTI can be calculated by adding up the mortgage payment, taxes, insurance, condo or association fees, credit card debt, auto loans, or any other debt you pay and dividing that total by your gross monthly income (income before tax). Note: The CFPB is currently proposing removing DTI limits and replacing them with a price-based model.
Loan-to-value ratio or LTV: Your LTV is calculated by the amount of mortgage you’re looking to borrow by the value/purchase price of the house. LTVs will vary depending on the amount of money you have to put down. LTV will also determine what type of mortgage you will qualify for.
Credit score: Your credit score will impact the type of mortgage loan you qualify for. If you don’t know what your score is, you may want to inquire with your loan officer or credit agency before you start calculating what you can afford.
Bottom line: There are many other factors that go into what you can afford. Talking to your loan officer about an affordability plan can give you a pretty good idea of what price range you fit into and what mortgage options are available based on your needs.
If you or anyone you know has questions about home loan rates or products, please reach out. I’m always happy to help. Enjoy this month’s issue of YOU Magazine.
Source: Mortgage Market Guide
We are ready to help you find the best possible mortgage solution for your situation. Contact Sheila Siegel at Synergy Financial Group today.
