How Much Can I Afford?

If you are buying a home, one of the first things you will ask your lender is about how much money you qualify to borrow. But when it comes to mortgage financing, there can be a sea of difference between what you CAN borrow and what you SHOULD borrow. It is important to understand what will be a comfortable and manageable mortgage payment for you, in the long-term.

If only the financial math is being taken into consideration, lenders calculate the Debt-to-Income Ratio & will allow for 28 percent to 31 percent gross income to be used as payment for the new house. Upto 43% of your gross-income will be used for the combination of all consumer-related debts. Keep in mind that these are only the average ratios & guidelines that most lenders set for all the common mortgage loan programs.

Things to Account For

Every person’s financial situation is bound to be different but it is important that you factor in all the variables and take your overall budget into consideration when you are trying to understand how much of a mortgage amount you qualify for. The things you will have to take into account in your monthly budget are:

  • Debts

  • Private notes

  • Family loans

  • Short-term expenses such as travel, medical, auto repairs, emergencies etc

  • Additional home expenses like maintenance, water, electric etc

  • Maintain a buffer for savings & financial planning

A Broader View

And so mortgage loan planning is a lot about taking a 360° view of your finances, your regular living expenses, contingencies and savings. The actual amount you can afford depends on numerous factors such as your annual income, the target monthly payment as well as the down payment amount. Speak with an experienced mortgage professional and understand how the process and calculation works.

Get Expert Advice

The person will be able to help you with evaluating the percentage of the total monthly income which goes towards all your debts & will help you identify the additional amount that you will have to divert towards your mortgage payment. The thing to remember is that the income you are left with post debt & taxes should be sufficient to cover all your living expenses & savings goals. For guidance on how to budget all these things and plan your mortgage loan to suit your circumstances, contact the experts at ResMac Home Loans.

Ten Credit Do’s and Don’ts To Bear In Mind Prior To Getting Your Mortgage Loan

How can a fully approved loan get denied for funding after the borrower has signed loan docs?

Simple, the underwriter pulls an updated credit report to verify that there hasn’t been any new activity since original approval was issued, and the new findings kill the loan.

This generally won’t happen in a 30 day time-frame, but borrowers should anticipate a new credit report being pulled if the time from an original credit report to funding is more than 60 days.

Purchase transactions involving short sales or foreclosures tend to drag on for several months, so this approval / denial scenario is common.

It’s An Ugly Cycle:

  1. First-Time Home Buyer receives an approval
  2. Thinks everything is OK
  3. Makes a credit impacting decision (new car, furniture, run up credit card balance)
  4. Funder pulls new credit report and denies the loan

In the hopes of stemming the senseless slaughter of perfectly acceptable approvals, we’ve developed a “Ten credit do’s and don’ts” list to help ensure a smoother loan process.

These tips don’t encompass everything a borrower can do prior to and after the Pre-Approval process, however they’re a good representation of the things most likely to help and hurt an approval.

Ten Credit Do’s and Don’ts:

DO continue making your mortgage or rent payments

Remember, you’re trying to buy or refinance your home – one of the first things a lender looks for is responsible payment patterns on your current housing situation.

Even if you plan on closing in the middle of the month, or if you’ve already given notice, continue paying that rent until you’ve signed your final loan documents.

It’s always better to be safe than sorry.

DO stay current on all accounts

Much like the first item, the same goes for your other types of accounts (student loans, credit cards, etc).

Nothing can derail a loan approval faster than a late payment coming in the middle of the loan process.

DON’T make a major purchase (car, boat, big-screen TV, etc…)

This one gets borrowers in trouble more than any other item.

A simple tip: wait until the loan is closed before buying that new car, boat, or TV.

DON’T buy any furniture

This is similar to the previous, but deserves it’s own category as it gets many borrowers in trouble (especially First-Time Home Buyers).

Remember, you’ll have plenty of time to decorate your new home (or spend on your line of credit) AFTER the loan closes.

DON’T open a new credit card

Opening a new credit card dings your credit by adding an additional inquiry to your score, and it may change the mix of credit types within your report (i.e. credit cards, student loans, etc).

Both of these can have a negative impact on your score, and could result in a denial if things are already tight.

DON’T close any credit card accounts

The reverse of the previous item is also true. Closing accounts can have a negative impact on your score (for one – it decreases your capacity which accounts for 30% of your score).

DON’T open a new cell phone account

Cell phone companies pull your credit when you open a new account. If you’re on the border credit-wise, that inquiry could drop your score enough to impact your rate or cause a denial.

DON’T consolidate your debt onto 1 or 2 cards

We’ve already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your capacity (the amount of credit you have available), resulting in another hit to your credit.

DON’T pay off collections

Sometimes a lender will require you to pay of a collection prior to closing your loan; other times they will not.

The best rule of thumb is to only pay off collections if absolutely necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score.

Consult your loan professional prior to paying off any accounts.

DON’T take out a new loan

This goes for car loans, student loans, additional credit cards, lines of credit, and any other type of loan.

Taking out a new loan can have a negative impact on your credit, but also looks bad to underwriters and investors alike.

…..

Follow these Do’s and Don’ts for a smoother mortgage approval and funding process.

Just remember the simple tip: wait until AFTER the loan closes for any major purchases, loans, consolidations, and new accounts.

_________________________________

Related Credit / Identity Articles: