UNDERSTANDING WHAT

DEBT-TO-INCOME RATIOS? DOWN PAYMENTS?
CLOSING COSTS? WHAT ARE ALL THESE THINGS?

WHAT IS A DEBT-TO-INCOME RATIO?

To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 3. For example, if your annual household income is $50,000, you might be able to qualify for a $150,000 home. This is just a rough estimate - the actual number will vary based on factors such as your debt and credit history.

Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.

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• Housing Expense Ratio
  Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
• Debt-to-Income Ratio
  You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

Contact our office to get a definitive estimate of what you qualify for!

When you buy a home, there are several up-front costs you should be aware of, particularly down payments and closing costs.

DOWN PAYMENTS

A down payment is usually between 3% and 20% of the total cost of the home. The amount of the down payment depends on your credit history, income, the cost of the home, and the type of mortgage you choose. Some lenders also have loan options that allow for no down payment at all.

If your down payment is less than 20%, you will need private mortgage insurance (PMI). This is insurance you pay to protect the bank if you don't repay your loan in full. PMI is added to your closing and monthly mortgage costs. When you apply for a home loan, many mortgages require you to also have at least two month's worth of mortgage payments saved, called reserves. However, there are mortgages that do not require reserves.

Most lenders want to know the source of your down payment and have restrictions about how much can come from gifts from your relatives. In most cases, these gifts will need to be documented. Ask your lender for more information.

CLOSING COSTS

Closing, or settlement, costs are fees you pay when you actually get your loan from your financial institution. These include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed, and other settlement costs.

Closing costs generally range between 2-7% of the loan value. You'll receive an estimate from your lender after you apply for a mortgage. You must pay these costs at the time you close on your loan.

Contact our office to get a definitive estimate of what you qualify for!