Before you begin looking at purchasing a home, it is important to consider your debt to income ratio. This is one of the first things a mortgage lender will look at when apply for a home loan along with your current credit rating (the ratio also has an impact on your credit rating).
The ratio is based between how much you owe each month on personal debt and how much you earn. The ratio gives you and your mortgage lender the percentage of debt you owe in relation to how much money you are making which gives the lender an idea of how much of a mortgage to give you that suites your financial state.
To arrive at your particular debt to income ratio, take all your monthly payments, such as: insurance, car payments and credit cards, and leave out groceries and utilities. Add them all up including your potential mortgage and home insurance payments and then divide them by your take home salary.
Keep in mind that the majority of home loan lenders will leery of approving a mortgage loan if it brings your debt to income ratio above 36%. If you are above the average be prepared to have you application denied or pay higher interest rates.
Note: You will want to make sure that your total expenses for your household remains under 28 percent of your gross monthly salary. Though there some mortgage lenders that will make an exception based on your credit history and ability to repay the loan, keeping your expenses under will help the application process. Once you have determined the amount you are willing to spend it is time to be pre0approved for a mortgage and star looking for a home with your realtor.
Debt to income formula: *Minimum monthly credit card payments: + Monthly car loan payments: + Other monthly debt payments: + Expected mortgage payments: *Total = *Your debt-to-income ratio is: *Your total by your monthly gross income = - 31386
The ratio is based between how much you owe each month on personal debt and how much you earn. The ratio gives you and your mortgage lender the percentage of debt you owe in relation to how much money you are making which gives the lender an idea of how much of a mortgage to give you that suites your financial state.
To arrive at your particular debt to income ratio, take all your monthly payments, such as: insurance, car payments and credit cards, and leave out groceries and utilities. Add them all up including your potential mortgage and home insurance payments and then divide them by your take home salary.
Keep in mind that the majority of home loan lenders will leery of approving a mortgage loan if it brings your debt to income ratio above 36%. If you are above the average be prepared to have you application denied or pay higher interest rates.
Note: You will want to make sure that your total expenses for your household remains under 28 percent of your gross monthly salary. Though there some mortgage lenders that will make an exception based on your credit history and ability to repay the loan, keeping your expenses under will help the application process. Once you have determined the amount you are willing to spend it is time to be pre0approved for a mortgage and star looking for a home with your realtor.
Debt to income formula: *Minimum monthly credit card payments: + Monthly car loan payments: + Other monthly debt payments: + Expected mortgage payments: *Total = *Your debt-to-income ratio is: *Your total by your monthly gross income = - 31386
About the Author:
Ready to purchase or sell a home or Edmonton condo in Northern Alberta? Contact Darlene Strang for assured success. Your personal Realtor for life and Condo specialist, Darlene Strang.
