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Buying a House? How Much Home Can You Afford?
Maybe you've heard the expert advice that your debt to income ratio shouldn't
be more than 36 percent of your total income. But do you truly know what
that means, and how lenders will look at your financial history in order
to decide whether or not to extend you a mortgage? If you need help figuring
out your debt to income ratio, simply follow the guidelines below and soon
you'll know whether or not you're in a position to apply for a mortgage
loan.
These are the Best of the Best:
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When applying for a bad credit mortgage loan, make sure you are current on your existing credit lines. You will want your current credit to be as good as possible.
Also, make sure to include all the income you have. If you have any equity in any stocks or other financial accounts, make sure to mention that to the broker as well.
The more money you can put down on the loan, the more likely it is that you can get approved. FHA loans usually only require 3-5% down. They are also usually open to working with people with credit problems.
Your debt to income ratio
is the amount of monthly debt you pay out in contrast to
how much income you have coming in. Start by figuring the
easy part—your income. If you are on a structured paycheck,
then it will be easy—simply calculate your monthly salary.
If you work on a commission or other type of varying income,
total your last six month’s earnings and divide by six.
Now you will need to figure
your monthly debt. You should total your car payment, credit
card payments (use the minimum amount payments for this
calculation, even if you pay more), any other monthly debt—such
as child support payments—along with the estimated amount
of your new mortgage payment.
Now, take the total of your
debt payments and divide it by your income and you will
have your debt to income ratio. Most lenders will want
to see no higher than a 36 percent debt to income ratio,
although there are a few exceptions.
If you find that your debt
to income ratio is so high that you may not be able to
quality for a mortgage, you should try to pay down some
of it before applying for your loan. This will not only
better your chances for a mortgage loan, but it will also
ensure that you quality for one with better interest rates
and terms.
Here are our recommended
sources for good mortgage lenders online:
These are the Best of the Best:
(updated )
The average rate of interest on mortgage loans continues to fall and has been under 5 percent for almost all of this past year, with this recent round of rate cuts seen as the lowest for borrowers in years. The reason, many borrowers today have bad or at least less than perfect credit scores. Still a borrower with less then perfect credit an jump through a few hoops and get a fairly decen rate on a loan.
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