Mortgage Questions

How much money should I spend on a home mortgage?

If you are wondering how much money should I spend on a home mortgage you should use an online detailed mortgage calculator to help guide you or talk to a lender before you start. Many lenders are happy to provide you with information up front even before you start looking at homes.

If you take the online approach, SmartMoney provides a great calculator to help you get an idea of how much house you can afford. The basic rule of thumb is between 28% and 33% of your gross monthly income. Be very careful when using online calculators because there are many factors involved that most don’t include.

However, with that said I personally think there are many other factors involved in how much you should spend on your home mortgage. I would personally take a more conservative approach and suggest staying under the 20% range. There are many factors involved in your personal finances that a lender won’t look into detail. My personal rate is around 15% and sometimes the budget runs tight with gymnastic class, dance lessons, rising fuel costs, eating out and the list grows.

Carefully consider all your expense before you sign on the line.

Can I afford to buy a home?

There are a couple of ways to approach the question “Can I afford to buy a home”? One way is to see it from they eyes of a lender. Most lenders agree on the following guidelines:

• Your debt-to-income ration can be no more than 36%
• A housing payment-to-income ration of no more than 33%, preferably around 28%
• Good Credit history
• Required Down payment or around 5%

If you meet all of those guidelines then you will have a good shot at getting a home loan from a lender.

However from your own personal financial situation you may get a different answer. From my own personal experience most lenders will offer to lend you more money than you can really afford. Lenders don’t factor other spending habits into the equation such as entertainment budgets, giving to charities, medical expenses and many other budgeted expenses. They also do not factor in future expenses such as retirement, college, weddings, etc.

Additional expenses will include possible home improvements you want to make once you move into your home. Paint, blinds, new carpet and an extensive list of improvement will probably cross your mind.

Before you decide how much money you spend on buying a home you should do a detailed budget analysis. Find out exactly how much money you are spending each month and how much you are saving. Don’t forget to include all of you and your spouses’ income as well as all your expenses. Also, include room for other future expenses that I mentioned earlier. Once you find your target amount find a good mortgage calculator online that will tell you how much house you can afford.

Once you have all these numbers calculated give it a test run. For the next three months pretend like you have purchased your home. Instead of actually paying the house payment put this money into savings. Not only will it inform you that you can afford a house, but it will give you additional money to pay down on the home or to purchase those possible improvements once you move into your new home.

So, if you are wondering if you can afford to buy a home use the lender guidelines as a starting point, follow up with a detailed personal budget analysis, do a test run and finish off with even more research.

Mortgage Questions

Some of the most commonly asked mortgage questions.

When it comes to buying a house you want to ensure you follow all the rules and do your homework. Buying a car may be a big financial decision however, for the average person, signing your name on a mortgage will probably be the biggest financial decision you will ever make. Below are a list of the most common questions you should know the answer to before you sign the mountain of paperwork. I am going to start this series of posts and over the next several months answer each of these mortgage questions.

• Can I afford to buy a home?
• How much money should I spend on a home mortgage?
• What are the differences between mortgage pre-qualification, pre-approval and final loan approval?
• What first-time buyer programs are available?

• What types of mortgages are available and which should I choose?
• Can I use my IRA retirement funds as a down payment on a home?
• Should I pay points on my mortgage?
• I have poor credit are there still options for a mortgage?
• What are front and back ratios?
• Is it still possible to get a loan with no money down?
• What is PMI (Private Mortgage Insurance? Why do I have to pay it?
• I know it used to be simple to get a mortgage? Is it still that easy?
• Can I take out a second mortgage and use that as a down payment for the first?
• Should I pay extra on my mortgage each month?
• Does it matter how long I have been employed? Will this effect my chances of getting a mortgage?

Once I have answered all these mortgage questions I will open the post up for comments. You can ask your own mortgage related questions and I or members of the blog will give the best answer we can. Please note I am not a professional or have any qualifications in this field, everything you read here is my personal opinion.