When shopping for a home, the first step you should take is determining how much mortgage you can reasonably afford. We recommend you be as realistic as possible where your household expenses and monthly income are concerned. You should also leave enough “wiggle room” in your monthly budget for those unexpected costs and emergencies.
Factors That Determine Mortgage Affordability
Recommendations call for following the 28% / 36% rule when calculating your budget. Simply stated, the rule requires that you spend a maximum of 28% of your total annual income on housing costs and no more than 36% on your other debts. This time-tested rule has formed the foundation for how much home you can afford. The following 4 factors should be taken into consideration when calculating your mortgage affordability:
- Your gross monthly income – this is your base salary plus any bonuses you receive. It can also include money you earn on a part-time basis and any Social Security benefits you receive in addition to your total income.
- Your front-end and back-end ratios – the front-end ratio is also called the mortgage-to-income ratio. It is the percentage of your annual gross income that goes towards making your monthly mortgage payments. The back-end or debt-to-income (DTI) ratio determines how much income is required to pay your debts.
- Your credit profile – two factors that influence a lender’s viewpoint towards you and your desire to borrow money for purchasing a home are your credit score and the amount of debt you owe. Your credit score will have a significant impact on the amount of money they will be willing to lend you.
- Your cash reserves – this is the amount of money you have to put down on a home and handle the closing costs.
By taking the 28% / 36% rule and these 4 factors into consideration, you should have a better idea of how much mortgage you’ll be able to afford. Furthermore, there are a number of different ways for determining the amount of a mortgage payment you can afford. Lenders commonly use a mortgage affordability calculator to determine budgets for mortgage payments and what a person can reasonably afford. However, they also use other factors to assess a borrower’s affordability.
Buy a Home in Fort Lauderdale with Florida State Mortgage Group, Inc.
It’s essential that your expectations are reasonable when determining this affordability factor as this can help you avoid getting overwhelmed with debt. For more information regarding your mortgage affordability, call Florida State Mortgage Group, Inc. today at (954) 359-3000. Our team of experts can help you compare and find the best mortgage suited for you.