This is Morgan. He's married. He just had a new baby and he's ready to buy his first home. This is "A Home of Your Own." Once I decided I wanted to own a home, I needed to make sure I could comfortably afford the loan I'd need to make it happen. I used what is called a debt ratio to come up with an estimate of how much I could afford to pay on a mortgage every month. Now, debt ratios serve two important purposes. They tell me how much of a loan you can qualify for and how much of a loan you can comfortably afford. Now generally, the ratio used to determine eligibility is debt to income. What you owe versus what you make. So ideally, your total debt should not be much greater than thirty percent of your gross income. Keeping this number down will help you maintain financial stability and give you a cushion to deal with unforeseen expenses. So, I multiplied my gross monthly income, forty-five hundred, by thirty percent to come up with the amount of debt I should not exceed each month. The resulting figure, thirteen-fifty, represents the most I should be paying for the total of all my regular monthly debt payments, which includes housing costs, credit card payments, student loans and car loans. Basically all regular monthly payments for which there is a reported associated debt. Housing costs include the principal and interest associated with the mortgage payment, as well as the property taxes and insurance. Together, these costs go by the acronym PITI. Other regular monthly housing charges, such as homeowner association dues or mortgage insurance should be included in the resulting figure as well. To come up with what I could comfortably afford as a mortgage payment, I subtracted my monthly non-housing costs, such as car and credit car payments, from my monthly debt load of thirteen-fifty. Given the price range you're considering, your Realtor can help you estimate what you can expect to spend on insurance and taxes each month. Subtract your Realtor's estimate from your PITI number and this will give you your estimated monthly payment. After working these numbers out, I went to see my loan officer to figure out the monthly payment I could afford into a loan amount. In addition to my debt to income ratio, we discussed my credit score, the cost related to taxes and insurance and the amount of my down payment to calculate the loan amount I comfortably afford. Once I knew how much was available for a monthly mortgage payment, including related costs such as taxes and insurance, I can talk to my loan officer to determine a loan amount I can comfortably afford.
Is Owning a Home Right for Me?
How Much Do I Need for a Down Payment?
Factors to Consider When Shopping for a Home
Buying a Short Sale Home
Home Loans: Fixed Mortgages vs. ARMs
How to Find the Right Real Estate Agent for You
What Mortgage Payment Can I Comfortably Afford?
When Is the Right Time to Buy?
How Does the Sale of a Foreclosed Property Work?