| What
can you afford? The key here is to live within your
means-beneath your Average Monthly Gross Income.
Be sure that you make more each month than what you
spend so that you may have some extra for the rainy day
and put some into savings. It is wise to try to keep
your monthly home payments at or around 33% of your
monthly gross income. Many loan programs will not even
let you acquire a loan if the mortgage payments it
creates will be more than 45-55% of your (your
household's) monthly gross income. Loan
companies/underwriters are looking to protect their
investment.
To figure out the Manageable
Mortgage Payment you should be looking for multiply
.33 times the average total monthly income you generate
as a household. That will help you understand the burden
you will be faced with just from the property.
Now, underwriters also
want to see what other debt you are responsible for. Add
up the monthly payments from all other debts (credit
cards, autos, etc.) and then add them to the manageable
mortgage payment from the step above. Call this the Average
Total Debt Payment. Divide this total by the average
total monthly income. If you are at 45% or more you may
not qualify for many loans. You may have to look for a
non-typical loan and be subject to a higher interest
rate.
To further assure that
you will afford the new debt take a moment to add up all
of your non-debt monthly expenditures. Include the
following personal bills:
- income taxes
- auto insurance
payments
- phone bills
- media/internet bills
- medical bills
- food
- gasoline
- health insurance
- etc.
Also include the
following area averages:
- water bills
- power
- sewer
- gas
- garbage
- property taxes
Once you have totaled up
the amount of your monthly expenditures and added them
to the average total debt payment compare this new total
to your gross income. Be very sure that the margin of
excess funds of your gross income above your expenses is
high enough or the risk may be too high for your
household.
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