Home Mortgage
Your long cherished dream of owning your home can be realized by getting a loan through home mortgage. There are several lenders with numerous schemes to lend you money according to your needs and budget.
But before you go out, it would be a good idea to first do your home work to evaluate your financial status especially your payback ability. Calculate your total monthly income from all sources. Subtract your essential household expenses and get the right amount to pay off your monthly loan installment.
Gross Monthly Income
- Household Expenses (Other Expenses)
= Net Total Income
Your monthly payback ability will determine the maximum mortgage amount you can get for your home. Lenders use a formula called debt-to-income ratio and front and back ratio to determine the amount you can get as loan.
The front ratio is the percentage of your gross monthly income before taxes that you can use to pay off your monthly installment comprising of your housing cost including the taxes, insurance, intrest, principal, mortgage insurance—when applicable, and homeowners association fees-this too when applicable.
The back ratio is the same thing except that it also includes your monthly consumer debts, that is, car payments, credit card debts and similar other loans.
These two calculations, that is, the ‘front’ ratio and the’ back’ ratio are normally expressed in 33/38 format. According to this ratio, a borrower’s housing costs take away thirty three percent of his income. Add to them his monthly consumer debt to the housing costs and it should take no more than the thirty eight percent of the monthly income to meet those obligations.
It must, however, be noted that they are only guidelines and can be made flexible. The lender would firmly stick to the guidelines, if you make a smaller down payment or your credit is just marginal. If, on the other hand, you make a larger down payment and your credit too is good, the guide lines would lose their rigidity. Moreover the guidelines vary according to the loan program.
The next step is to find out the right to guide you to choose the right option according to your financial position. You need to do some spade work to find out the one who charges least from you and provides best service as well.