Tips for Buying a House Within Your Income Range
Tired of renting? Did someone at work just buy a home and they can’t wait to close? Did you recently get bitten by the “home buying bug?” It happens at some point to all of us. Even if you’re not ready to buy your own home at least you’ve thought about it. But if you’re getting past the “thinking about it” stage to getting pretty serious about it, you first need to get an idea on what you can afford. At least what you can afford in a lender’s eyes. Lenders are required to make sure you can afford a new mortgage and they do so by comparing your monthly income with monthly debt and come up with a debt ratio, or simply “ratio.” In general, lenders like to see total credit obligations be no greater than 43 percent of your gross monthly income. This is a formula lenders use. Is it the same formula for you, however? Here are some basic tips to buy a house within your range.
First, get comfortable. This is probably the most important tip. When you speak with a loan officer over the phone or meet in person you’ll answer several questions about how much money you make, how long you’ve been on your job and about other bills you pay each month. You won’t be asked about utility bills or how much you pay for mobile phone service but for things that will show up on your credit report such as credit cards or student loans. At the end of the conversation you’ll be provided with a loan amount and an accompanying monthly payment. Yet just because you can qualify for a certain monthly amount doesn’t mean you’re obligated to take it. Instead, get comfortable with a monthly payment and instead ask the loan officer to put together a loan package based upon monthly payment.
Second, use your current rent payment as a guideline. When you write your rent check each month is it an easy process or do you feel like you’re being squeezed each month? If you feel like you’re being squeezed and your qualifying mortgage payment is the same or even more you’ll have that same feeling when you make your mortgage payment.
Third, remember that you’re the boss here. Don’t let a lender tell you what you can qualify for and that’s the direction you’ll go but take a step back and make sure the house you buy is comfortably within your income range. Just because the loan officer says you can qualify for a $3,000 per month mortgage payment doesn’t mean that’ what you’re going to finance. If your rent payment feels just right now, then your future mortgage payment should too.
Exceptions to all of this are a change in future income. For example, you expect a raise in a few months and you’ll have more money in your pocket or you’re going to have two incomes in the future instead of one by taking on a coborrower or a spouse. However you measure it, remember who’s in control. You are.
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