Don’t Take On A Bigger Mortgage Than You Can Afford: Watch Your Debt-to-Income Ratio

About the author: This guest post was provided by Kyle Chezum, a content specialist at Lender411.com. Lender411.com helps homebuyers compare mortgage rates, find local lenders, and locate the best mortgage packages available.

It may seem that with the right mortgage you can purchase any home you want, as long as you’re able to make the monthly payments. This is true, in a sense. You can borrow as much money as you qualify for, and depending on your credit score and your future financial goals, you may qualify for enough money to purchase any home on the market.
 

But this is just half the story. Don’t forget about the monthly payments. You may actually qualify for a bigger loan than you can handle.
 

If you want to determine how large of a loan you can afford, start by calculating your debt to income ratio. There are two sides to this ratio. The first side is called the Front-End Ratio. The second is called the Back-End Ratio.

· The Front-End Ratio is calculated by determining what percentage of your monthly income goes toward your housing costs. For example, if you make $3,500 per month and you spend $700 on rent, your front end ratio is 20%. It’s advisable to keep your front-end ratio below 33%. With your $3,500 income, then, you can probably afford to pay no more than $1,155 (33% of $3,500) on your mortgage. These days, the lower your front end ratio, the better.

· The Back-End Ratio is calculated by determining how much of your monthly income goes toward recurring debt of any kind, including housing. If you make $3,500 per month and make a $100 credit card payment and a $110 student loan payment, your back-end ratio after taking on a $1,155 mortgage payment will equal 39%. It’s best to keep this ratio below 45%.
 

Even these calculations, however, won’t guarantee that you can keep up with your payments. Look at your own lifestyle and decide how much more income per month you can afford to put toward housing. Put that additional monthly income aside into a savings account for a few months and see whether or not your budget survives. If it does, you can probably afford a mortgage payment of that amount. If you find yourself scraping to get by, you probably need to rethink your goals.
 

Once you have a budget in place and you know what you can afford, start comparing lenders and looking for the best current mortgage rates.  Get prequalified for the exact amount you’ve determined you can afford, and not a penny more. Bob Parks Realty will help you with the rest! 

Posted by:  Jody Stahly

1. Work with a Bob Parks real estate agent that is familiar with your local market and financial situations.

2. Don’t bring silly money to the table… More >

For more information about Bob Parks Realty, visit www.bobparks.com. Or check out these quick links:

Middle TN Real Estate Links

• Nashville Homes For Sale Under $100,000 (1400 listed)

• Nashville Area Luxury Homes For Sale (661 listed)

• Murfreesboro Homes for Sale $134,000 - $350,000 (1500 listed)

• Franklin Homes for Sale $200,000 - $400,000 (350 listed)

• Smyrna Homes Homes for Sale $125,000 - $275,000 (200 listed)

Posted By: Kimberly Fahey

As more and more 1st time home buyers enter the real estate market one comment that I hear over and over is “We don’t even know where to start”. My answer is simple, “Well, you’ve come to the right person, because helping you understand and guiding you through the home buying process is my job.”

As your Realtor® I can help you avoid costly home buying mistakes. There are essential techniques that I recommend to all my clients that have helped them save time, money, and aggravation.

First, get pre-approved for a home mortgage. Mortgage approval (not just qualification) is a major hurdle for many homebuyers and is extremely important in today’s market. Many lenders have stricter guidelines than they did even a month or two ago, and a pre-approval letter will carry much more weight with the seller when you can attach it as part of your offer. Pre-approval will help in determining your price range and help you save time. This vital step will also provide you an opportunity to quickly place an offer when you find your perfect home.

Second, I can help you with finding the home you want to buy. As you think about where and what to buy, there are many important factors you should consider:

• Your work commute – how quickly can you get to and from work? How much traffic will you encounter? Is access to public transportation an important feature?
• Access to shopping – how important is having easy access to a shopping center? What about grocery stores?
• Utilities – Is there access to cable or high-speed Internet?
• Medical services – Is distance to the nearest hospital important to you?
• Parking – Do you want a garage? Is street parking available for guests?
• Recreation –do you need close proximity to parks, lakes, beaches or ski slopes to accommodate your hobbies and interests?

Finding the right neighborhood is just as important as finding the right house. When you are ready to purchase a home, I look forward to the opportunity to discuss all of your needs and ensure you have a house that suits your lifestyle and interests. Contact me at (615) 829-1051, or search for homes on my website at www.middletnrealestate.net.

Posted By: Christine Nale