How Much Should You Borrow?
Determining Your Mortgage Amount
Determine your cost of living
The debts used to calculate your debt to income ratio are your proposed housing payment along with credit debts, such as car notes, student loans, and credit card payments. Mortgage qualifying does not take into account living expenses such as groceries, utilities, clothing and entertainment. That’s why creating a budget and determining your cost of living is an essential step to deciding how much you can comfortably afford to borrow. And while these insights are helpful as you begin the borrowing process, it is essential to meet with a trusted mortgage consultant who can talk with you about your complete financial picture and help you create a budget, if needed.
Prequalification vs. Affordability
The mortgage crisis was caused by banks lending money to people who never could afford a mortgage. Homebuyers with bad credit were allowed to take out mortgages based on stating income that was not verified. Buyers and loan officers both lied about income to help people qualify. These bad loans were often adjustable rate loans with interest rates starting around 8%, only to go up substantially after only 2 years — creating a recipe for disaster. Thankfully, current regulation prevents the worst of these bad lending practices, but it is still important to understand there is a big difference between the amount you are prequalified to borrow and the amount you can comfortably afford to borrow. Work with a mortgage consultant you trust and get a mortgage not only in the prequalification range, but in the affordable range.
What if something unexpected happens, such as losing my job?
Whether you own or rent, it’s a good idea to have 3-6 months worth of living expenses in savings, especially if you are a homeowner. The last thing you want is to be unprepared for a crisis, which can amplify the emotional and financial stress of an unforeseen event.
Please contact Leaman Team today to discuss your home financing: (512) 710-1400 or email LeamanTeam@LoanPeople.com.