What size house can you afford? – Consider Debt vs. Income
When Determining how much house a potential buyer can afford, mortgage brokers consider your debt vs. income ratio. This ratio is composed of your gross income divided by the amount you pay monthly for debts.
For example if your ratio is something like, 25/45. Twenty-five percent of your monthly income is used to pay for housing. 45% of your monthly income contributes to paying down debt every month.
This ratio alone does not determine your top loan amount however. Other factors include down payment size and credit history. As a general rule of thumb, FHA loans require a 29/41 ratio or better.
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Buying a home is one of the most expensive purchases that a person will make in his or her lifetime. In order to guarantee that a prospective homeowners will be satisfied with such a large purchase, it is essential that they choose a home loan that has a good fit. Apply online free to contact a home loan expert today.
Depending on the cost of the home and the borrowers income, there are a variety of loans to choose from. Generally, there are two types of loans: fixed rate loans and adjustable rate loans.
Fixed rate loans have are standard and have a set rate and term that is determined at the start of the loan. This means that the monthly payment of the principal balance and the interest will not change through out the duration of the repayment period. The loans repayment periods usually last 15 to 30 years. Borrowers should be careful to note whether or not their loans include an early payment penalty. An early payment penalty is an out of pocket cost that a homeowner will have to pay if the loan is paid off before the 15 or 30 year mark. If such a clause will be included in the loan, the borrower can adjust the loan period by agreeing up front to make one extra payment a year, which can cut up to 10 years off of the loan repayment period.