Buying your first home is an exciting step that probably also leaves you feeling slightly unsure of how the process unfolds. Planning for your first home requires the completion of several steps before you actually close.
If you are in the process of buying a home, you might be wondering: “How much mortgage can I qualify for?” Determining not only how much you can qualify for, but how much you can actually afford is an essential first step toward purchasing a home.
When buying a home, you first prepare by getting pre-qualified for a mortgage. This will help you understand the amount a lender is willing to loan you, as well as give you an idea of what your payments might look like. You’ll look at different types of mortgages available to you, and determine your best fit. As you find the right loan for you, you might also wonder: “How much house can I afford (FHA or conventional)?” Like all loans, FHA and conventional loans offer different terms, interest rates, and down payments.
If taking steps toward buying your home is feeling overwhelming, or you first want to find out what you can qualify for and what you can afford, TwinCity Lending is your local choice for assisting you in finding the mortgage that fits your needs and lifestyle. Whether refinancing or purchasing your first home, we are ready to make the process simple and even enjoyable.
When it comes to finding out how much “home” you can afford, we can provide you with options and information that will help you determine the right choice for you.
There are several ratios that your lender will use to determine how much of a mortgage you qualify for. Understanding how they will be calculated will help you decide what you can afford. Don’t let these ratios confuse or intimidate you, they are simply a way for lenders to make sense of your financial picture. The formula for determining the ratios is straightforward and is an effective tool for reflecting your financial situation.
The first ratio lenders use is known as the front-end ratio. This ratio reflects your new mortgage payment as a percentage of your gross income. Once you know the ratio your lender uses, you can divide your annual gross income by 12 (months) and then multiply that answer by the ratio your lender uses. The number from that equation reflects your total maximum mortgage payment.
The next ratio used to determine what you can afford is the back-end ratio. This ratio is calculated using the amount of monthly debt payments you have. For instance, you’ll need to add up items like your car payment, credit card payments, student loans, and any other loan debt. Expenses such as utilities and groceries are not taken into consideration when calculating your debt.
To calculate the back-end ratio, you will divide your annual income by 12 (months) and then multiply that number by your lender’s back-end ratio. Next, you subtract your monthly debts from that number, which results in your back-end ratio maximum mortgage payment.
Using the Ratios to Figure Out What You Can Afford
Once you figure out both ratios, using the lower number will give you a realistic idea of what you can afford. Your lender will use the back-end ratio when it comes to approving you for the loan.
Just because you can have the mortgage your lender offers doesn’t mean you have to spend up to that amount. If you feel a lower payment is more manageable, then you can decide on a lower monthly payment, and look for a house that falls within your budget.
Buying a house is exciting and a momentous step for your future, but you want to be able to live comfortably, and enjoy your new home without stressing over the payment. When shopping for a home, be sure to stay within your budget, and you’ll have a successful home buying experience.
Use Your Lender’s Calculators and Expertise
Your lender’s website typically offers online calculators on their website to calculate your potential mortgage payment, affordability of a home, tax savings, and more. These are useful tools when it comes to planning and preparing to purchase a home. TwinCity Lending offers various calculators on their website to assist you in your home buying decisions.
In addition to online resources, working with your lender to devise the perfect plan of action when it comes to buying a home is invaluable. Having someone you can rely on and trust throughout the process will make your home buying experience enjoyable and less stressful.
Let TwinCity Lending Make Your Home Purchase Simple
At TwinCity Lending, you’ll find experienced mortgage professionals ready to walk you through the lending process, whether a refinance, first-time home purchase, or reverse mortgage. We are available to help you answer the question: “How much mortgage can I qualify for?” and so much more.
We specialize in low-interest home purchases and refinance loans by keeping overhead costs low. We enjoy working directly with our clients to understand their goals and needs in order to provide the best solutions available for their lending needs.
If the home buying process seems overwhelming and you have concerns about where you should start, let us walk you through your home buying adventure to relieve the stress and uncertainty. We are here to provide you with expert information, exceptional service, and the loan that’s right for you.
Contact us today and let’s start working on a plan to help you purchase the home of your dreams or refinance your current home to reflect your current situation. The home buying process doesn’t have to be worrisome and instead can be enjoyable and simple. We look forward to working with you, providing the right lending option for your home. Count on us to guide you through every step and help you achieve lending goals!