Buying a home is a dream for most people. They want to put down roots and secure a place for their family to grow and thrive. Investing in a house is also a risk. In most cases, the buyer is betting that they will be able to make regular payments on the property for twenty or thirty years and that the value of the home will remain stable or increase over that time. Otherwise they end up paying more for the house than they can later sell it for or they end up losing the house in foreclosure when they are unable to afford the payments.
This latter situation is at the root of the recent economic recession. Lenders took heavy risks during the real estate boom market and ended up with homeowners who could no longer afford their mortgage payments. The result is that most lenders now have much stricter guidelines for mortgage loans, including better Debt To Income Ratio s and higher minimum credit ratings in order to qualify for the best mortgage rates.
Any loan is going to take into account an individual’s debt to income ratio. This tells the lender how much debt the person will have (including the new loan) in relation to how much income they receive. A good guideline for calculating debt to income for a mortgage is that the costs associated with home ownership should be 28% or less of the gross income of the household and the total debt of a household should be less than 36% — including the mortgage, car loans, credit cards, and other forms of debt.
Using debt to income calculations along with mortgage interest rates and mortgage payment calculators, a potential homeowner will be able to see exactly how expensive of a home loan they can easily afford as well as how much of a loan a lender is likely to grant them.
Research provided by Jerome Fencier, a writer and financial coach who has covered corporations and investment brokers and offered tips on college saving plans and mortgages on financial websites.