4 Keys to Identifying Your Best Path to a Home Mortgage
Tuesday, April 25, 2017, 6:00 PM | Leave Comment
With the American real estate economy enjoying a solid recovery over the last few years, prospective first-time home buyers are once again being encouraged to own a slice of the United States.
Home ownership has always been an important element of the American Dream, and the mortgage lending industry is the most realistic conduit for making this dream come true.
With this in mind, here are four keys to identifying the most adequate path you should follow as you enter the mortgage application process.
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Home Affordability
This is the most important element of the home-buying and mortgage-lending process.
The Housing Affordability Index was developed by the National Association of Realtors a few years ago in response to the confusion created by the bursting of the housing bubble circa 2008.
In essence, this index measures the likelihood of a typical American family being able to qualify for a mortgage for the purpose of purchasing an average single-family home.
The Housing Affordability Index is a statistical measurement derived from complex calculations; however, mortgage lenders saw the value in creating a calculation to help prospective borrowers determine if they can actually afford to buy a house.
Nowadays, many real estate and home finance sites feature home affordability calculators based on three main factors: total expense to income ratio, housing expenses, and debt-to-income ratio.
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The 28/36 Rule
Mortgage underwriters use the 28/36 rule to figure out if a prospective home buyer will be able to make monthly payments regardless of their credit score and history.
The 28 portion refers to the annual gross income produced by the prospective borrower and co-borrowers, and it can be used to calculate the maximum monthly payments.
The formula is the annual income multiplied by 28 percent and divided by 12, also known as expense-to-income ratio.
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Debt-to-Income Ratio
The 36 portion evaluated by underwriters comprises all monthly debt obligations such as car loans, active student loans, credit cards, and others.
The formula uses the total monthly debt payment divided by the gross monthly income.
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Housing Expense Payment
Full monthly housing payments are more than the principal plus the interest; the taxes, insurance and maintenance fees must be taken into account along with the cost of borrowing money.
This payment may be significantly lowered when dealing with USA Peak Loans and other wholesale mortgage brokers since they are able to offer reduced closing costs and more reasonable fees than retail brokers.
In the end, you should not focus too much on mortgage rates and listed home prices until you calculate home affordability and figure out how much house you can actually buy.
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Anica Oaks is a Freelance writer and web enthusiast. Read some of her published work on her Google+ page.
