Step by step guide continued...
How does a lender determine the mortgage
amount you may receive?
When you first approach lenders about
financing a mortgage for you, they will use two commonly accepted
guidelines to help determine your ability to make mortgage payments.
These guidelines are a starting point for evaluating your ability
to make the payments on the proposed loan. So your lender will look
closely at your individual financial situation to determine if more
flexible guidelines are appropriate for you.
1. Your monthly housing costs (including
mortgage payments, property taxes, homeowner and mortgage insurance,
and home-owner’s fees) should total no more than 28 percent of
your monthly gross (before taxes) income. In addition to your regular
pay, your income can include funds you receive from overtime work,
a part-time job or second job; retirement, VA, and Social Security
benefits; disability; welfare and unemployment benefits; alimony;
and child support.
2. Your monthly housing costs plus other
long-term debts such as payments on car loans, student loans, or other
installment debt (debts with more than ten months left to repay) should
total no more than 36 percent of your monthly gross income.
Depending upon your household income,
you may be eligible for special assistance programs. These programs
may make it easier for you to get a larger mortgage loan than you
normally would be able to using the above qualifying rules. Now, to
get an idea of the mortgage amount that you might be able to qualify
for based on your annual income, let's look at a calculation. You
will need to know the approximate interest rate that lenders currently
are charging for a 30-year, fixed-rate mortgage. Check the real estate
section of your local newspaper or call a mortgage lender to get the
current rates for your area. Then use our qualification
calculator
This is the amount you could potentially
borrow. Only you can decide whether you feel comfortable carrying
the maximum amount of financing that you qualify for. And this calculation
can only help you with the first qualifying rule – the amount
of your home payment. It does not take into account the amount of
your other debts. If they are high, that could reduce the amount of
the loan for which you can qualify.
Give yourself a “+” if you
think your family’s monthly income is enough to pay both your
current monthly expenses and the housing payment you would owe if
you bought a home. Give yourself a “–” if you do not
think you would qualify at this time.
Have you been turned down for a mortgage?
If you have tried to buy a home, but
were unable to get approved for a mortgage, you should try to find
out why the lender did not want to make the loan. Based on the information
above, you may already have figured out why you did not get a loan.
Maybe you did not have a steady work history, or you tried to buy
a house that was too expensive for your income, or your debt level
is too high. If you are unable to figure out why you were turned down,
you should ask the lending institution for an explanation. You should
also ask what steps you can take so that you can qualify in the future.
Allie Mae can give you advice.
You’re ready to buy a home.
What do you do first?
If you have read all the information
above, and have received a copy of your credit report, you may be
ready to begin the process of buying a home. You may want to call
a local real estate agent to show you homes in your area. You may
also want to make an appointment with a mortgage lender. You can apply
with an Allie Mae approved lender here.
It will take some time working with a real estate agent to find the
right home in the price range that you can afford. It will also take
time to apply for the mortgage, have the lending institution evaluate
your application, and have your loan approved. Still more time is
required to do all the necessary paperwork and close on your loan.
But in the end, you will have a home for you and your family, and
you will have achieved an important part of the American dream.
You do not think you are ready to
buy a home or you are not sure. What should you do?
If you took this test and received a
couple of minuses, or you
weren’t sure about some the questions, don’t be discouraged.
You took the first step! The next step you may wish to take to
put your family on the path to home ownership is to contact Allie Mae
for personalized advice.
Owning you own home may seem out of
reach, but you can
change that over time. Even if you know you cannot qualify
now – or even six month from now – there may be a way you
can work toward this important goal in the future. Nobody ever said
becoming a homeowner was easy. It’s difficult, but it’s
also rewarding. It can be worth sacrificing and planning over a long
period of time to achieve it.
Allie Mae 02-01-2004
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