Calculations Before Applying for a Mortgage
Before you begin looking at purchasing a home, it is important to consider your debt to income ratio. This is one of the first things a mortgage lender will look at when apply for a home loan along with your current credit rating (the ratio also has an impact on your credit rating).
The ratio is based between how much you owe each month on personal debt and how much you earn. The ratio gives you and your mortgage lender the percentage of debt you owe in relation to how much money you are making which gives the lender an idea of how much of a mortgage to give you that suites your financial state.
Doing the math: It is a simple calculation, add up your monthly expenses (such as your car payments, minimum credit card payments, loan payments etc, note: you don’t include things like groceries or utilities). Add your expenses and payments (your mortgage payments plus, mortgage insurance, home insurance and property taxes) and divide the total by your gross monthly income.
If your ratio is falls under the 35% mark, then you’re doing great and shouldn’t have a hard time being approved for your mortgage. If however your debt ratio is above 35%, it may be become difficult to be approved for the loan and be prepared to pay a higher interest rate if you are approved.
If you can, it is preferable to keep your total housing expense under 28 percent of monthly gross income. Keep in mind, the lower your debt-to-income ratio the better, so pay down as much debt as you can before starting the mortgage process. Once you have a good idea of what you can afford and where you want to buy, check out current mortgage rates and contact Edmonton’s number one Realtor below.
Use the following calculate your debt-to-income ratio: *Minimum monthly credit card payments: + Monthly car loan payments: + Other monthly debt payments: + Expected mortgage payments: *Total = *Your debt-to-income ratio is: *Your total by your monthly gross income =
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