We’ve talked about Credit History and Asset, the next leg of the CH-A-I-R is Income.
INCOME is how a lender determines your ability to pay. You may have heard about DTI (Debt to Income Ratio). Based on past performance lenders know that you can only effectively allocate a certain percentage of your income toward your monthly payment and your other credit debt. Your lender has guidelines that will allow a certain percentage but you have to take a long look inward, examine your spending habits and determine exactly what your budget is for your monthly payment. You and your lender should spend a lot of time figuring out exactly the right payment for you and then “STICK WITH IT!”.
General lender guidelines are between 29-33% of your monthly income going toward your house payment. The yard stick a lender uses is your “gross” monthly income (before taxes, SSI and other deductions). Most lender websites have calculators you can use to help you “pre-qualify” yourself. Frankly these calculators are a waste of good programming. INCOME is one of the most subjective areas of underwriting and it takes an experienced loan originator determine how much income is useable for the purpose of your home loan. If you are a salaried employee and your paycheck is the same week after week after week, then you can get a “handle” on your pre-qualification amount. But most of us have variances in our checks, i.e. overtime, bonus, shift differential etc. these require the help of a professional or you will find yourself looking at homes for which you don’t qualify. If your Lender says you qualify for $200,000 AND you are comfortable with that payment, don’t look at $230,000 homes. It’s basic economics the more you pay for a house the higher the monthly payment.
Much of the current “mortgage mess” is due to folks, just like you, buying homes they couldn’t afford. They either overstated their income or were “qualified” at a much higher DTI than was reasonable. At the First Time Home Buyers Network we don’t want you to buy your first home and then lose it because the payment was more than you could handle. If you have confidence in your lender (if you don’t you shouldn’t be working with him/her anyway) don’t stretch beyond your budget. You have to decide which is more important: Getting the house you want or Getting the house you can afford?
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