What Size Mortgage Can You Afford? – Part 1
Posted by RealEstate_Guru
With so many homes for sale in Raleigh NC, it’s virtually certain you’ll find just the perfect property in just the perfect location. Whether urban or suburban, your home in this vibrant region is a great investment. But let’s backtrack a moment. Before you look at any homes, you need a good idea of how much you can afford to spend per month. Here’s some general information about determining the amount you can afford, so there won’t be any surprises when you actually do apply for home financing.
Banks and other entities that offer mortgages generally use fixed, basic formulas or “qualifying ratios” to determine your eligibility. These calculations help the lender determine how much you can afford to borrow and what your monthly payment would be. Always remember, though, that each mortgage application is evaluated on an individual basis, so you shouldn’t be reluctant to apply, even if the formulas don’t seem calculate favorably for you. At this point, formulas are just tools and models to help you choose the best financing option.
To qualify for a conventional mortgage, you need to show lenders that you can afford to spend somewhere between 28% and 32% of your gross monthly income on the payment. When lenders calculate your estimated payment, they include the following factors: mortgage principal, mortgage loan insurance, private mortgage insurance (PMI) and, if applicable, homeowners insurance and state, local and federal taxes. This aggregate of associated expenses is abbreviated PITI.
Here’s an example: If your annual gross income is $50,000, then your monthly gross income is $4167. This amount multiplied by the ratio used by the lender equals the payment you can afford. If the lender uses a 30% ratio, then your payment would be $1250 per month. But it’s not that simple. There are other factors that effect the sale of homes in Raleigh NC [Continued below in Part 2].
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