Financing Your Home Purchase | Real Estate Financing | Home Loan Financial Readiness
Featuring information and tips for financing your next home purchase. Serving Salt Lake City, Park City to Provo.

Throughout United States there are thousands of people looking to buy a home, either now or in the near future. Interest rates for the past several years have been low and continue to remain reasonable, thus making it more affordable to buy a home. Taking into account the real estate market, competition among lenders, and low interest rates it can make more sense to buy than rent.

One of the most important criteria to look at when preparing to buy a home is your debt to income ratio. Simply put, your debt to income ratio states the percentage of your income which is going towards your debt. Mortgage lenders will use this information in conjunction with other criteria to qualify you for a home mortgage. Depending on the type of mortgage loan you get; conventional, FHA, or VA, just to name a few, the debt to income ratio may vary.

For the purpose of this article let us look at conventional mortgage loans. When applying for a mortgage loan you may see a 28/36 qualifying ratio. What this says is that a max of 28% of your total gross monthly income can go towards housing expenses. This includes your mortgage payment, property tax, association fees, insurances, etc.

For example:

Yearly gross income = $56,000 / Divided by 12 = $4,666.67 monthly gross income

$4,666.67 monthly gross income x .28 = $1,306.67 allowed for housing expenses

The second part of the qualifying ratio is a 36. This number represents the maximum percent of debt that a lender will generally allow for both housing expenses and recurring monthly debt. In general, this includes all your housing expenses plus credit card payments, car payments, student loan payments, etc

For example: (using the information from the above example)

$4,666.67 monthly gross income x .36 = $1,680 allowed for recurring debt and housing expenses

Don’t get discouraged if you don’t quite meet the above criteria. There are many options available when applying for a home mortgage.

The amount of a down payment you can afford is another important aspect of buying a home. Typically, lenders look for 20% of the purchase price. Depending on the cost of the home you wish to purchase this tends to be a lot of money. Again, don’t get discouraged. There are many types of mortgage loans available and some of those include zero down options.

One last thing to consider when buying a home is the closing costs. By talking with a mortgage lender you can get an estimate on how much these costs will be. You may also be able to negotiate with the seller through a real estate agent the amount of closing costs you will be responsible for. Some sellers are motivated to sell their home and will assist the buyer in paying the closing costs.

When buying a home you should always get pre-approved for a home mortgage before you begin looking at homes. Getting pre-approved helps in many ways but the most important is that it sets the price of the amount of home you can afford on your current budget.