Kandi Pitrus' Blog
Whatever your priorities are, before you take on the purchase of a home, answer these questions for yourself:
- Why do you want to purchase a house? Is it for financial reasons? Is it less expensive than paying rent? Until you’re certain about your reasons for buying, take it slow and make a plan. It’s your money, your time and your effort that goes into maintaining a home. Buying for the wrong reasons leads to buyers’ remorse and dissatisfaction.
- Where do you want to own a home? Is extra land important to you? Or, do you want to be near other family members? Farther away? Can your lifestyle support the commute? Buying a house that requires an extensive commute changes your life in ways you may not foresee. Moving away from friends, entertainment and shopping areas you enjoy can tarnish the pleasure of a new home. Pick your location based on what you want most, even if it means a smaller house or less land.
- What type of home do you want? Do you prefer a maintenance-free condominium with a view? A single-family home in an HOA-controlled neighborhood? A townhouse with an attached garage and street-level entry? Be clear about what living style suits you. If hearing the neighbor’s alarm clock raises your stress level, a flat-style condominium or attached townhome might not be the best option for you. A duplex with only adjoined garages could fit the bill nicely though. Let your agent know which things are deal-breakers and which are merely preferences.
Once you decide, with absolute certainty, what you want, you can set about finding just the right home in the best location at the correct time and for the optimal price. When it’s right, you’ll know it. Start by finding the right agent. Reach out today for a consultation.
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As you start your journey to home ownership, one of the terms you may hear from your mortgage lender is debt to income ratio. Many people have never heard this term before, but it is an important aspect of obtaining a mortgage. Your mortgage lender wants to make sure you are not going to default on your mortgage payments. While your current credit history plays a role in this determination, your debt to income ratio also is considered.
Your debt to income ratio is the percentage of your gross income against the amount you are obligated to pay monthly. This means your credit card bills, car loans, life, health, and other insurance premiums may be considered, along with your anticipated mortgage payment and taxes. Generally, a lender will want your debt to income ratio to be at or lower than 43 percent of your income.
Calculate Your Ratio Early in the Process
Potential homebuyers can easily determine what their debt to income ratio is based on current mortgage interest rates and the amount they are seeking to borrow to purchase a home. To calculate the ratio, you will need the following information:
- Total annual salary — since a lender will review your taxes for the past three years, the best method is to use your most recent tax return and get your gross annual income before taxes. Once you have this number, divide it by 12 for calculating your gross monthly income.
- Monthly debt ratio — you will want to determine what debts you are obligated to pay monthly. This should include student loans, car payments, and any other debt which you expect to pay for at least five years including personal loans. Using a mortgage calculator, determine what you anticipate your mortgage payment will be including property taxes and insurance. Make sure you include all costs associated with your mortgage when using a mortgage calculator. The totals you get here will generate the total amount of your monthly debts.
- Final calculation — the final calculation will be determining your debt to income ratio. This is your total monthly debt divided by your gross monthly income is equal to your debt to income ratio.
High debt to income ratios can impact your ability to secure a mortgage. However, an important thing to remember is that some lenders do have some flexibility when using debt to income ratios. There are lenders who are exempt from the “ability to repay” rules for qualified mortgages. Talk to your mortgage lender about your debt to income ratio if the numbers are problematic. They can provide you with the available mortgage options based on your ratio.