So you’ve made the decision to buy a home, you’re excited and picturing tile floors, kitchen islands with cook tops in them, maple cabinets, fenced in yards and 3 stall garages.  The perfect dream home, you’ve done some research and figured the houses you want are in a particular price range; you’ve saved a good nest egg and are ready to buy.  But do you have any idea how much you can afford?

Expectations?

There are two perspectives, the first perspective is what YOU feel you can afford on a monthly budget, and the second is what the mortgage company thinks you can afford.  We just hope that these two numbers are close.  If you have gone through the effort of researching homes and budgeting your finances ; you are obviously a responsible person.  But the way mortgage qualification is done can sometimes change your expectations.  Several things that determine your pre-approval amount are debts, incomes and past credit performance.  So many clients come in and say they’ve been using online calculators to approved themselves, but the truth is those online calculators are not giving you the whole story.  Often leaving things like mortgage insurance out of the payment, it gives you a false impression.  The best way to identify what your true payment would be is Contacting your mortgage professional and having them figure it out for you.

 

Debt To Income Ratio (Debts and Income)

This is the formula that calculates how much your mortgage payment can be.  It takes up to 50% of your household monthly income, subtracts out debts like credit cards , car loans, student loans, personal loans, mortgages, child support , alimony and tax payments; the remaining amount can be used towards your mortgage payment.  Keep in mind mortgage companies only use the minimum payments required on these debts.

Calculation for someone with $60,000 annual salary ($5,000  a month)
50% of $5,000 = $2,500
debts to include:  Car Payment $250.00 / Credit Cards $50 / Student Loan $175 .  Total debt = $475.00
$2,500 minus $475.00 = $2,025.00 maximum mortgage payment

 

Past Credit Performance

This has a significant influence on your mortgage pre-approval as well, because your credit score is as important as your income because it will determine the type of loan you apply for.  If your credit rating has suffered in the past you may be a better fit for an FHA loan because it’s credit requirements are more lenient when you have a lower score. FHA loans also have a higher debt to income ratio than that of other loans, so you may be able to afford a large price point with them.

 

The Issue Of Down Payment

Down payment isn’t always an issue, if you have a decent credit history and a good score, you are likely eligible for a no down payment WHEDA loan, these loans are offered locally through Madison and are eligible for any type of buyer as long as they meet certain criteria.

WHEDA isn’t the only option either, there are multiple down payment assistance programs we work with that require some classroom education to get.  But they have been a huge help in buyers building their real estate portfolio.

The Take Away

 If you are genuinely interested in buying a home you should know the process. These are the organized steps it takes to accomplish the home purchase you desire.  The first step is always contacting a trusted professional with good reviews.  Likely your friends or family have worked with someone.

The second step is  setting up a meeting and knowing the documents you will need for pre-approval.  Once you have all this established you are on your way to buying a home.  Hopefully this article has been helpful!

 

 What Can I Do Now?

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if all that checks out you can apply here

Justin Scott

Loan Officer

NMLS 878581

  1. C) 920-530-4484
  2. O) 920-490-8823
  3. F) 920-490-8967

Executive Mortgage

NMLS 271650

909 . E Walnut Street

Green Bay WI 54301