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How to Calculate Mortgage Affordability

Many first-time home buyers hear how much a home they are looking at costs and guffaw at the price tag. People being surprised at the prices they are seeing on real estate signs is a perfectly natural reaction as the price of homes has gone up steadily over the years. The prices are even higher in states and cities in the country that are highly sought after and in demand for a variety of reasons. Affordability is the thought that typically comes next upon hearing the prices that are being given. Thinking about affordability is a sign of financial intelligence because no one wants to purchase a home that they find is too expensive for their budget and they end up dealing with a foreclosure notice being sent in the mail or put on the front door.

People that default on home loans often have to deal with nightmare collections calls, a very low credit score, and many problems in obtaining loans for the next few years until it falls off the credit report. One of the biggest reasons for bankruptcies is the debt on a home that can’t be paid and that can be a risky move and possibly the only choice for those that don’t want to be kicked out on the street. Making wise financial decisions can save you from that type of financial nightmare and enable you to be a home owner that isn’t struggling to pay their bills. The common determination that people use to find out how much they can afford in a mortgage is multiplying two times their gross income for a year and using that as their maximum loan amount. It is important to know what lenders think you can afford when you head in to apply for a mortgage.

Lenders often use a process that involves figuring out your debt-to-income ratio to see what they feel you can afford without being in a financial quagmire that could potentially cause you to default. Debt-to-income ratio is determined using debts such as credit cards, child support payments, alimony payments, and car loans that you may have. Mortgage companies don’t want you to buy a home that is too expensive for your budget because they worry about defaults.
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A good down payment of around twenty percent can make it easier to afford the mortgage overall. It is important to note that most lenders will only require around a five percent down payment or less to get the loan. People should add up their monthly expenses and bills to help figure out how much of a mortgage you can afford. Determining your mortgage affordability is done by adding up your expenses and bills to come up with a number that works for you and also taking into account the calculations that the lender uses.Discovering The Truth About Lenders

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