michele stewart Realtor
Michele Stewart 2864 Street Road Bensalem, PA 19020
Cell: (215) 771-4242
Fax: (215) 245-6329
Home:
Work Phone: (215) 638-4880

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Understanding the Pre-approval process

DIRECT CONTACT 215-771-4242

 

 

If you're like many first-time homebuyers, chances are you've been spending your weekends driving around visiting open houses and new model homes. This is a great way to get a feel for what you want. The problem is that what you want isn't always what you should get.

Before you start touring homes for sale, it's important to start off with a budget so you know how much you can afford to spend. Knowing what mortgage payment you can handle will also help you narrow the field so you don't waste precious time touring homes that are out of your reach.

Where to begin

The key factor in figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it's expressed as a percentage.

The ideal ratio

Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 28 percent of your gross monthly income goes to housing expenses.

Doing the math

First, figure out how much total debt you (and your spouse, if applicable) can carry with a 36 percent ratio. To do this, multiply your monthly gross income (your total income before taxes and other expenses such as health care) by .36. For example, if your gross income is $6,500:

 

  $6,500 (Gross monthly income)
x .36 (Debt-to-income ratio)
= $2,340 (Total allowable monthly debt payments)

 

Next, add up all your family's fixed monthly debt expenses, such as car payments, your minimum credit card payments, student loans and any other regular debt payments. (Include monthly child support, but not bills such as groceries or utilities.)

 

  Minimum monthly credit card payments*: ____________
+ Monthly car loan payments: ____________
+ Other monthly debt payments: ____________
= Total monthly debt payments: ____________

 

*Your minimum credit card payment is not your total balance every month. It is your required minimum payment -- usually between two and three percent of the outstanding balance.

To continue with the above example, let's assume your total monthly debt payments come to $750. You would then subtract $750 from your total allowable monthly debt payments to calculate your maximum monthly mortgage payment:

 

  $2,340 (Total allowable monthly debt payments)
- $750 (Total monthly debt payments other than mortgage)
= $1,590 (Maximum mortgage payment)

 

In this example, the most you could afford for a home would be $1,590 per month. And keep in mind that this number includes private mortgage insurance, homeowner's insurance and property taxes. To determine the price of home you can afford based on this amount, use a home affordability calculator.

Exceptions to the 36 percent rule

In regions with higher home prices, it may be hard to stay within the 36 percent guideline. There are lenders that allow a debt-to-income ratio as high as 45 percent. In addition, some mortgage programs, such as Federal Housing Authority mortgages and Veterans Administration mortgages, allow a ratio higher than 36 percent. But keep in mind that a higher ratio may increase your interest rate, so you may be better off in the long run with a less expensive home. It's also important to try to pay down as much debt as possible before you begin looking for a mortgage, as that can help lower your debt-to-income ratio

Get Pre Approved  Now 

 

www.michele.homevisory.com

 


Buying Services for Home Buyers


 

HOW MUCH CAN YOU AFFORD

 


Congratulations!  You have decided to purchase a home, or are thinking about buying one.  You'll be joining the ranks of hundreds of families who realize that home ownership offers a number of benefits including building equity, saving for the future, and creating an environment for your family.  When you own your own home, your hard-earned dollars contribute to your mortgage. The equity you earn is yours.  Over time, your home will increase in value.

In the following reports, you'll find the information you need to make a wise buying decision.  We'll take you through the planning process step-by-step , to help you determine which home is right for you.  You'll find a host of informative articles on mortgages, viewing homes, the offer, closing details and moving.

Please contact me if you have any questions about buying a home in Bensalem or elsewhere in Pennsylvania.

Below, select desired reports and complete the form provided.

Avoid Common Buyer Errors
Some buyers, however, caught up in the excitement of buying a new home tend to overlook some items. When you have a systematic plan before you shop, you’ll be sure to avoid these costly errors. Here are some tips on making the most of your home purchase.
But Do You Need It
Buying a home can be an emotional, time-consuming, and complex process. There are a few things that you can do to help make the process go as smooth as possible.
Buying Your First Home
Many renters are starting to think about purchasing a home of their own. This article highlights several factors that should be considered when purchasing a home.
The Right Home at the Right Price
This article helps you become a savvy buyer, by pointing out some of the pitfalls inherent in the home-buying process.
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