How much can I afford?
Home affordability is one of the most asked questions. While most companies focus on the list price of the home, Get Mortgage Ready teaches our clients to think about the monthly payment.
What can you comfortably afford to pay each month on your new home?
The exact amount that you will qualify for will be determined by a mortgage lender. They analyze your entire financial profile. Two of the main areas that they examine will be your Debt to Income Ratio (DTI) and your credit score.
To determine DTI, your income and debts are analyzed. Monthly Income is the Gross Monthly Income from all borrowers that will be on the loan. Not all income is acceptable, such as part-time income of less than 2 years, seasonal income, etc. Monthly Debt is the total of all monthly debts owed by all borrowers. This would not include your current rent which will be replaced by the new mortgage payment or any payments that does not show up on your credit report such as utilities, groceries, phone bills etc. Think automotive payments, credit card payments and any installment loans.
Dividing your Total Debts by your Total Income gives you your Debt to Income (DTI). Loan programs have different DTI requirements but the lower your DTI, the better for you. If Total Income is $8,000 per month and Total Debt is $3,000, the DTI would be 38%.
Lenders examine all borrowers’ credit scores. The higher the scores, the more options you have Your Get Mortgage Ready team will recommend ways to improve your scores and analyze ways to lower your DTI. Since credit improvements can take time, the sooner you begin addressing it, the sooner you may qualify for home ownership.