Short on cash? Finance the Mortgage PointsWritten by Syd Johnson
Once you get a quote for a home loan don’t be tempted to take entire amount if it looks like you overqualified. Most consumers fill out an application for a home loan and hope they can get enough money to buy their dream house.A nice chunk of those consumers also overqualify for their home loans. If go to your local bank, credit union or mortgage broker and you are approved for a $500,000 home loan, they payments might be a bit more than you realistically afford. Look at your entire budget If you are not good with your money or would prefer to not stretch your finances to limit to get a home, get your hands on a good mortgage calculator as soon as you get figures on your home loan. You might think all will be fine as long as you can own your own property. However, you must take into account all of things that come along with owning a home. Sometimes you can get so caught up with actual dollar amount of your home loan that you forget other pieces of your budget. Check your budget to see if you still have money to enjoy things like going out, purchasing new furniture, a family vacation once per year and regular manicures and pedicures. Then add in your student loans, car payments, credit card bills, lunches at work and tickets to take your family to baseball games a couple of times every season.
| | Want to Buy a Home? What is your debt to income ratio?Written by Syd Johnson
Every time you apply for a credit or a loan, lender must determine your debt to income ratio. This measures what percentage of your gross monthly income (everything before taxes are deducted) that goes towards paying off your debts. The debt to income ratio formula varies slightly according to type of creditor or lending institution that you’re dealing with. Your credit card company for example might accept a higher ratio as long as you make all of your payments on time.Mortgages on other hand are large, long term debts. In this case, most lenders will want to make sure that you are at lower end of their debt to income ratio threshold. So, how does one go about calculating this important number? The easiest way is to divide total of your monthly payments by your gross monthly income. For example, if your total debt payments are $500 with a $2000 per month paycheck, your debt to income ratio is 500/2000 = .25 or 25%. So what does that number mean? In general, lower your debt to income ratio, better. It shows that you have fewer obligations and are more likely to keep up all of your existing payments. A generally recommended ratio is 15%. All of your car loans, credit card payments, student loans and more should stay at 15% or less.
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