Working Our How Much You Qualify For

You would like to buy a house but aren’t sure if you qualify for a mortgage. You have been saving your money, keeping debt to a minimum and paying your bills in a timely manner. You have a fairly well paying job and from time to time boost your income with some part time work.

The Down Payment:

The first thing you will need to establish is a down payment. A down payment is partial payment, usually a percentage of the total cost, paid to show good faith and a promise to pay the balance in installments or one lump sum at a later date. A down payment of 10% to 20% is required when purchasing a home. You might be able to provide less than a 10% down payment, but that may require purchasing private mortgage insurance. Of course, the more down payment you have, the less mortgage you will have and the less your monthly payments will be. As soon as you begin working, it might be a good idea to begin to save for a down payment in the event you want to buy a house in the future.

Qualifying Ratio:

One of the criteria for a mortgage is the ratio between the projected mortgage payment and your existing debt. Your debt is payment being made on auto and student loans, credit cards, alimony, etc., that won’t be paid off in ten months or less. The ratio 28 and 36 are used by most lenders. What that means is 28% of your gross income must cover the mortgage, including principal and interest and real estate taxes and insurance. Payments on your debt when combined with your housing payments must not exceed 36% of your gross income. If you do not meet the qualifying criteria you will be turned down. In the event you are turned down, be sure you get in writing a detailed report why you were turned down. That will be helpful to make corrections before applying again.

Expected Housing Expenses:

If you have a specific house in mind, find out what the annual real estate taxes are or look up the real estate taxes for the area you would like to buy and estimate the annual real estate taxes. Next, estimate your closing costs. The closing costs are the fees charged for processing the loan, the title company handling the paperwork, a surveyor, deed recording fees, etc. The fees lenders charge will vary but they can be anywhere from 1% to 8% of the purchase price. Add those costs to the cost of the house and calculate the payments on the house. If that number is above percentage the lender uses (usually 28%) of your gross income you may have a difficult time getting a mortgage. If you are under that number, you have a pretty darn good chance of getting a mortgage. This is not an exact calculation, but it will indicate if you qualify for a mortgage and the money necessary to make it happen.

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