How Much House Do You Qualify For?

written by Jennifer Chiongbian
MORTGAGE EXPERT
12 · 07 · 20
Mortgage Pre-approval

Figuring this out at the onset will save you time, money and set you up for realistic expectations. It is a straightforward process, and there are many free online mortgage calculators that you can use to factor in your estimated mortgage payment.

Do the Math

  1. Add up all your monthly expenses.
  2. Add up all your monthly income.
  3. The difference is your net cash each month. Keep the ratio of debt and income to 43%-45% for your best chances for loan approval.

The formula for debt to income ratio= expenses/income

Good credit will play a vital factor in determining your interest rate. The lower your interest rate, the lower your payments will be, or a better home you can afford.

When you know what you are left with each month, factor in a monthly payment that you are comfortable paying each month as your mortgage payment, compute backward how much you can afford using free online mortgage calculators.

In short, the last thing you want is to be kept up at night for a house payment.

Estimating Your Closing Costs

Closing costs are fees that are tied to finalizing your mortgage and putting the keys in your hand. This includes title fees, transfer fees, transfer taxes, recording fees, mortgage insurance, etc. 

All states have differing amounts, so as a rule of thumb, factor in about 2%-5% of the total purchase price. 

Personally, it is most beneficial to you as a buyer to overestimate than underestimate. If you have extra cash in the end, you can use that for any home improvements on your new property or pay down any debt.

You will want to budget paying these fees outright. Some lenders will allow these fees to be built into your mortgage, but you will be paying interest on top of this for the life of the loan.

Closing Day

At least 3 days before you are expected to sign the docs for your new home, you will receive a Closing Disclosure or Good Faith Estimate (GFE). This relates to all the itemized fees associated with your home purchase. Make sure to ask your mortgage broker any questions if you need clarification.

You will need to bring a cashier’s check to the closing table or wire the funds in the time of COVID-19. Make sure that all the repairs are completed, provide your homeowner insurance information and any and all inspection reports. 

Final Words

One important thing to remember that most real estate brokers fail to tell clients to purchase a home: do NOT make any unnecessary large purchases before closing. Keep your spending habits the same as when you first started looking for a new home.

We understand your excitement for a new tv, sofa, car, appliances, etc. This can throw off your debt to income ratio, your good credit score, and interest rate, and the lender can deny you your home loan. Yes, I have seen this before. Wait until after you have the keys in your hand to make any purchases.

Now you can start unpacking and decorating your brand-new dream home.

 

Author

Jennifer Chiongbian

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