Know How Much You Can Afford for a Home with a Mortgage Calculator
It’s one of the biggest decisions you’ll make in your lifetime and you want to be ready. Purchasing a home is a life changing event, but you want to make sure that it changes your life for the better. That means being realistic about your finances. If you’re interested in buying a home on Long Island, you want to make certain that you have the funds. At Cliffco Mortgage Bankers, we’ve been helping people achieve the dream of home ownership since 1989. So we want to help you by giving you information on how to tell if you can afford a home and how to calculate what you can afford to pay.
Calculating Expenses for Home Ownership
Before you start calculating how much you can afford for a house, it’s a good idea to remember that mortgage calculators don’t cover everything you need to know. The Wall Street Journal reminds us that you will be responsible for making repairs to the home for all of the years you own it. You’ll also be responsible for other costs such as landscaping and snow removal. Not to mention your utility costs which may go up if you’re moving into a bigger space.
This is in addition to other fees that you will be responsible for beyond the purchase price. As a home buyer, you’ll pay for closing costs and legal fees, which are usually about 2 percent to 3 percent of the purchase price. You’ll also be responsible for moving fees, other labor costs and if you’re moving into a condominium, you’ll be paying monthly maintenance fees.
What Lenders Look at For Mortgages
That brings us to calculating whether or not you can afford the purchase price. According to the financial publisher, bankrate.com, most mortgage lenders calculate affordability taking into account personal information such as your income, debt and your personal expenses. They will create what’s called a debt to income ratio. This measures the percentage of monthly income spent paying off debt, including your mortgages, student loans, auto loans and any credit card or child support payments you make on a monthly basis.
According to bankrate.com, it’s a standard rule in the lending industry that your monthly housing payment should not exceed 28 percent. This is called the front end ratio. Lenders also calculate a back end ratio which consists of all debt commitments like car loans, student loans, etc., plus the house payment. The rule here is that lenders prefer the back end ratio to be 36 percent or less.
Cliffco Mortgage Bankers Will Assist You in Understanding Your Options
But it’s important to note that these preferred ratios are not carved in stone and lenders will look at other issues. One of these is your credit history. If you have a strong credit background, that can lower your interest rate and allow you to take a bigger loan. Paying a larger down payment can help you buy a more expensive house than you would get under the preferred ratios. And the federal government can give legal protection to some mortgages that have a backend ratio up to 43 percent.
So if you’re looking to purchase a house, take the time to assess the costs and what your debts are. Use our mortgage calculator to find out what your payment will be. Figure out what homes you can afford, then if you’re ready to talk or have questions, contact Cliffco Mortgage Bankers. We’ll be happy to assist you.