How to determine what mortgage I can afford

Determining how much you can afford in as far as your mortgage is concerned is tricky although it is easy to do. You ask yourself 'how much can I borrow'. There are certain things that you look at and these include your debt to income ratio, monthly expenses, mortgage insurance and the mortgage term. The easiest way to know how much mortgage you can afford is by using mortgages calculators.

Debt to income ratio

This is an important ratio used by lenders to determine whether you can afford a loan. Your total debts are compared against your total income. Your debt will include things like loans, credit cards, child support and other housing expenses like insurance. It also includes your outstanding bills and any future plans that you may have in as far as expenses are concerned. Housing expense ratio This is the amount of money that you are going to be spending on your mortgage. The amount will include mortgage insurance, taxes, interest charges and the principal amount. It is usually recommended that the amount must be less than 28% of your gross income. The housing expense ratio however changes depending with the area that you intend to buy your house.

Using a mortgage calculator

A mortgage calculator will tell you the maximum mortgage amount you can afford and your monthly mortgage repayments. The calculator will request you to fill in information about the mortgage. This will include your monthly income and expenses, interest rate and the loan period. you do not have to use any formula because the calculator will calculate the figures using the information that you provide. Consult a mortgage counselor You may need to talk to a counselor first before you can make your final decision. They know the requirements and understand the whole process better than anyone because they deal with mortgage cases every single day. Besides the factors discussed above, you also need to know that there are other costs that you need to take into account. For example there are taxes and interest charges, homeowners insurance, utility bills, unexpected repair costs, inspection costs and related expenses. It is therefore important to plan ahead and know how much you can really afford before making the decision. Lastly, the amount you can afford is also largely determined by your down payment. The larger the down payment, the higher the mortgage loan and the opposite is true.