Learn To Stay Within Your Mortgage Limits
Fine you know how much your mortgage hurts your pay packet every month or how much money your gas is guzzling away. But do you know what percentage of your income should actually be allocated to these expenses? Chances are you probably don’t and are just paying money as and when the charges come up. And believe me, if you are deep in debt, probably is one of the biggest causes is — your inability to budget your income.
It is not enough to pay for services and goods. You should have an idea of how much is enough for housing or transportation. A good budget will even help you know if that home you want to buy will fall within your budget or whether you should go in for a lower budget home. But first you must know how to create a proper budget. Experts across the country agree that most consumers don’t know how to create a realistic budget.
One of the first things you must do is use the percentage method of calculating your mortgage amount. Most people usually allocate amounts subtracting from total income in lieu of percentages. This is quite frustrating. What you can do is use percentages as a guideline. For instance, your rent or mortgage (including insurance and taxes) should be about 27 percent of your income, minus taxes. Your outer limit should be 35 percent. If you are planning to buy a home whose mortgage rate will come to more than 35 percent, you should probably be looking around for a cheaper home.
Remember, even your mortgage lenders uses your gross income to determine how much house you can afford. So if you bring home $50,000, and you want your mortgage to stay at 27 percent, your mortgage should be about $13,500 a year, or $1,125 a month. This percentage is only a guideline and it all boils down to your comfort level.
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October 18th, 2006 at 6:20 pm
What Size Home Mortgage Can You Afford?
Mortgage lenders use common formulas when determining how much home mortgage loan a borrower can reasonably afford. These formulas are called qualifying ratios because they estimate the amount of money you should spend on home mortgage payments in relation to your income and other expenses.
The ratios may vary from lender to lender and each application is handled on an individual basis. There are many affordability programs—both government and conventional—with more lenient requirements for low and medium income families. Many of these programs require financial counseling to help potential buyers learn about the responsibilities of home ownership.
Generally speaking, in order to qualify for a conventional loan, housing expenses should not exceed 26% - 28% of gross monthly income. For FHA loans, the ratio is 29% of gross monthly income. Monthly home mortgage loan costs include principal, interest, taxes and insurance (often abbreviated as PITI).
I’ve written several articles about mortgages that will give you more information if you’re thinking about refinancing to make your numbers better:
Mortgage Refinancing Q & A
Debt Consolidation Refinancing
Bad Credit Refinancing
Home Equity Second Mortgage
October 18th, 2006 at 6:33 pm
P.S. Here are the links to the articles I mentioned above:
Mortgage Refinancing Q & A
http://www.badcreditmortgagerefinancingnow.com/index.php
Debt Consolidation Refinancing
http://www.easymortgagerefinancing.com/debt_consolidation_refinancing.php
Bad Credit Refinancing
http://www.easymortgagerefinancing.com/refinancing_with_bad_credit.php
Home Equity Second Mortgage
http://www.easysecondmortgages.com/home_equity_second_mortgage.php