Tips for Determining What You Can Afford

House hunting requires that you plan ahead. Before you start shopping, and contacting a mortgage company in Oak Ridge TN, figuring out how much house you can afford is an important question to ask yourself. Ultimately, when you buy more house than you can truly afford, you’re putting your future at risk. Here are some ideas on how you can determine what you can afford.

Tips for Determining How Much House You Can Afford

Remember that not all mortgage lenders will provide you with a reasonable number. They make money by making loans, so it’s in their best interest to get you as big of a loan as possible. While not all are dishonest, others may be so tread water lightly with other mortgage companies.

Debt to Income Ratio

A mortgage lender uses a formula to determine how much house you can afford known as the debt-to-income ratio. This is a percentage of your monthly income that goes toward paying off debts. Generally 25% of one’s monthly income is ideal amount for a home. This number changes as someone pays off other forms of debt. Also, know that the front-end ratio is the amount of your income that your monthly housing payment (including principals, taxes, insurance and interest) make up. Most

Find an Affordable Payment

To figure out how much house you can afford, banks calculate your DTI in two different ways. First, they look at what they call the “front-end ratio.” This is the amount of your income that your monthly housing payment – principal, interest, taxes, and insurance – would take up all by itself. A mortgage company usually tries to keep this at or below 28% of one’s income.

Look at your monthly income, debt payments and other expenses, savings, available funds and your credit score to determine how much house you can afford. A loan officer can have an open and honest conversation if you’re prepared with all of these numbers and showcase that you understand the process.