Choosing a Mortgage Your Budget Can Afford
Understanding Your Debt-to-Income Ratio
Mortgage companies use your debt-to-income ratio to determine how much you can afford. This ratio expresses your monthly income and your debts as a percentage. Mortgage lenders typically do not want your mortgage payment to be greater than 33% of your monthly income amount. When your other bills are factored into the equation your total monthly obligation should not be greater than 38% of your monthly income.
How to Calculate Your Debt-to-Income Ratio
When calculating your debt-to-income ratio it is important to only use income you can document. This means you need pay stubs and w-2s to document your income. The simplest way to calculate your debt to income ratio is by taking the amount on your w-2 form and divide by twelve. Multiply this amount by .38 and you will have the maximum amount your mortgage payments and bills can be.
Using a Mortgage Calculator to Determine Your Payment
You can calculate what your mortgage payment will be based on the interest rate and purchase price of your home using a simple mortgage calculator. Once you determine how much of a mortgage payment you can afford you can easily determine if a home is in your price range. You can learn more about your mortgage options, including costly mistakes to avoid by registering for a free mortgage tutorial.
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Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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