14 Apr The Bibel Team: How Much Mortgage Can I Afford?
Today, we’re going to be talking about how much mortgage can I afford and how much can I get approved for as a first time homebuyer.
Hey everyone, Eric Bible with the Bible team at Neo home loans. One of the biggest things that we look at as a financial institution is really your debt capacity and what that means, you commonly hear well, what’s my debt to income ratio, and really debt to income ratio is effectively all of your debts divided amongst your gross monthly income. So what we’re looking at and what we’re qualifying based off of is your perspective housing payment. So really, what the new house monthly payment will be plus then any and all debts that appear on one’s credit report. So that’s going to be items such as your credit card payments, car payments, student loans, essentially anything that is revolving debt. We take those two numbers. We add them together.
So again, the proposed housing payment plus the current monthly obligations, and we divide that over your gross monthly income. And gross monthly income is essentially all take home pay. So that includes your bonus, your commissions, your base pay salary, overtime, essentially all derivatives of your income satisfy the gross monthly income. Now there are specifics of what can and can’t be used. And again, we’d love to get into more granular detail through a conversation or through a face-to-face meeting. But for this exercise, really all those put together. And then again, we take the two debts proposed housing payment, plus your existing liabilities and divide that amongst your gross monthly income that gives us your debt to income ratio.
This kind of general rule of thumb is most banks will not allow for more than 43% of your gross monthly income. And there obviously are exceptions, but generally speaking in that 43 to 45% is kind of the sweet spot. That really dictates around what your expectation is as far as proposed monthly housing expense. Obviously then we can take that information and kind of reverse engineer into what that translates into as far as a perspective purchase price. Obviously there’s factors that tie into how much you have available to you for down payment. What, you know, what that component looks like. And then again, like I said earlier, we reverse engineer into what this translates into a purchase price. So really those components are the key drivers around what dictates affordability.
Now, one thing that is not taken into consideration in affordability is your normal day to day expenses. So what you spend on gas, what you spend on groceries, fun, going out to dinner, going on vacation. So those other things, you know, what we like to do here on our team is really understand what a prospective client’s true budget is. I mean, the last thing we want to do is put a client in a position of where their “house support” to where all their money just goes to paying the housing expense. That’s not a good place to be, and that’s not fiscally responsible. It’s kind of irresponsible on our end as mortgage professionals. So really having an understanding around what your overall financial picture is, is something that we like to do to help put you in a position to where you can now make the most informed decision around your purchase goals.
So here, you know, having that thorough review with a mortgage professional to help weed through the different components within, you know, what your budgetary constraints look like is super crucial. Again, I want to conclude the fundamental baseline to understanding what your affordability is for both a repeat home buyer and a first-time home buyer, all centers around your debt to income ratio, which again is your current debts. Plus the perspective housing payment divided amongst your gross monthly income. We would love the opportunity to assist with your home financing needs. Please reach out to us today. And if you’d like the content that you’re seeing here today, please like subscribe comment below. We’d love the opportunity to serve you down the road. Thanks again.