Getting the most Affordable Mortgages

Getting the most Affordable Mortgages

Getting the most Affordable Mortgages

The American dream is still to own a home. Unfortunately for many people that dream doesn't last simply because they purchased more house than they were able to afford. The current housing market is a perfect example of what can happen when people outspend their resources and don't plan properly. The problem is that most people simply don't know how to calculate the amount of mortgage that their income will allow. Although banks generally are the deciding factor, as we have seen, lenders do not always make the proper decision when it comes to a loan amount. Though many lenders are much more conservative these days, there are still opportunities to borrow yourself into disaster.

The best indicator of what you can afford is a simple formula of debt to income ratio. Though not a hard rule, most mortgage providers are looking for borrows whose mortgage will be less than 30% of their total monthly income. So if you make $60,000 a year, your monthly mortgage payment should not exceed $1500.

The other considerations include expenses that are associated with owning a home. Things like taxes, insurance and repairs can add up to a considerable sum and many new home buyers are unaware of what these expenses will add up to. If the total down payment is less than about 20% you will also have to maintain private mortgage insurance until your equity reaches a certain amount. When these expenses are added up, they must be subtracted from the mortgage amount figured by the gross income calculation and can reduce the amount of the loan that you can afford.

So if we take the example of the person making $60,000 per year, the maximum amount of mortgage they would realistically be able to afford would be around $200,000. This is based off the average current interest rate of about 5% for a fixed rate 30 year mortgage. Though it is disappointing to not be able to afford the home you wanted, buying one you can afford will leave you happier in the long term.

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