Working Out How Much You Qualify For With
a Mortgage
In looking to purchase a home it is vital to know just how
much of a mortgage loan you would qualify for. The amount
of mortgage loan that you would qualify for depends on a number
of factors, such as your current income, interest rates and
other debt payments which you may have. Banks consider a number
of factors in determining how much of a loan you qualify for.
Here are the most common factors used in determining how much
you qualify for with a mortgage:
Monthly Income
This is the total amount of income you are receiving from
all sources. It can come from employment, pension, retirement,
or other sources. Your monthly income is probably the greatest
factor in determining how much of a loan you would qualify
for. Your monthly income can include your monthly salary,
plus yearly commissions or bonuses. It is important to have
financial documentation of all the sources of income at your
disposal. Records for at least the last couple of years will
most certainly be required by the lending institution.
Monthly Housing Expenses
This amount comes from the worksheet on housing expenses
and is usually those expenses that include the taxes and insurance
on the property. Besides federal taxes, they may be local
taxes to also pay. Be aware of the total expenses you are
going to have in the purchase and maintenance of a property.
Besides real estate taxes, in this category you would also
include hazard insurance, any housing association dues or
fees and mortgage insurance.
Monthly Liabilities
The total amount of monthly liabilities from a special worksheet
on liabilities used to determine the maximum house payment
per month that you could make. Items such as car loans, credit
card bills, installment or student loans, child support and
alimony payments are included in this section.
Monthly Housing Payment (referred to as PITI)
This is the total amount of the loan principal, taxes, interest,
insurance and other dues or fees. This amount is calculated
by taking the lower of two different types of calculations:
your monthly income multiplied by 28% is your PITI or your
monthly income multiplied by 36% minus any other outstanding
loans equals your PITI.
Maximum Principal and Interest
This amount refers to your maximum monthly principal and
interest payment (often referred to as simply PI). You can
obtain this amount by taking your monthly PITI payment and
subtracting the monthly taxes and insurance. This calculation
uses the maximum monthly principal and interest payment in
determining the total amount of mortgage amount that you would
qualify for.
Beginning Interest Rate
It is the rate of interest that you would likely receive
on the mortgage loan. It is only a starting point, as many
other interest rates would also be displayed, as well as their
corresponding mortgage amount results. The amount of interest
rate you will be paying on the loan is a major factor on how
much of a mortgage you would likely qualify for.
Length of Loan
This is usually calculated in terms of years. This is the
total number of years in which you will pay back the loan.
These days, most mortgage loans are from 15 to 30 years in
length.
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