Calculating Your Home Loan

The Importance of Determining What You Can Afford

Making the decision to buy a home is a large one and should never be taken lightly. The mortgage industry can be very perplexing to those outside who have no insight to it. Deciding how much money you should commit and how much money to borrow will be the first thing you need to determine – even before looking at houses.

Too many buyers make the mistake of first finding the home they want and then try to find a way to pay for it. They may be talked into an ARM (Adjustable Rate Mortgage). This is almost always a bad idea; unless the plan is to only own the home for a couple of years.

There are basically only two predominant factors to consider: the amount of money you earn and the amount of money you owe. If you remain somewhere in between these two boundaries your monthly mortgage payments should present no difficulty. If you live in a fantasy world and rely on, say, a pay raise that you are sure is coming, you are setting yourself up for a fall when trying to meet your home loan obligation.

Things to Understand when Dealing with Mortgage Companies

Mortgage company loan officers as well as real estate agents tend to take your current debt situation lightly when calculating the amount of money to lend you for a home loan and this is a consideration for the real estate agent when he considers which properties he'll show you. The result is you'll be approved for more money and shown higher priced houses than they you should commit to.

Loan officers realize that your note will be your most important bill when the first of the month rolls around. If you come up short and your other bills suffer, you're you're probably going  to fall behind on power bills or your car loan. They also realize that loans quickly sold off to other mortgage companies. Why should they care what your financial situation is at that point. They won't be calling in your loan.

Eric Tyson, who is the co-author of the book "Home Buying for Dummies" put it this way,  "Many people don't really understand what the numbers are saying, so they allow lenders and real estate agents to tell them what they can borrow. They leap to the conclusion that if the lender tells them they can borrow that much, they can really afford to do so. People need to take a good hard look at their current spending and budget, and examine how that is going to change with the proposed home purchase."

Calculate Your Mortgage

Get out your paperwork and find these costs.
1) Housing costs: sum your projected home's principal, interest, any taxes (local, school, etc.), assessments or any other fees (home owner's association) This total should be less than 28% of your annual gross income.
2) Liability obligations: sum your mortgage, car loans, student loan payments, any child support, and any credit card bills whose pay off period is over six months. This total should be less than 36% of your pre-tax income.
Just enter your income and expenses into an online calculator. we'll tell you how big a loan and monthly payment you can afford. You will need the current interest rates for this tool.

Finding the Best Mortgage Company for You

Finding the best mortgage company is an important part of the home buying process and it is the next step after determining how much house you can afford. One good place to start is by asking friends what their home buying experience has been like, how their lender treated them and what kind of mortgage they had.

Many will present stories of last minute expenses and unexpected charges when they sat down at the closing. Some will report that their lender just was not ready and forced them to wait around all day while papers were being shuffled. These things are not just irritations, they are indications of the lender's company culture and is likely how you will be treated in future dealings.

There are many questions you should ask your lender to ensure that everything is on the up and up. The government has a lot of information on this and is a good place to draw up a list of concerns. Once you get your answers and are satisfied it's time to shop.

Find out more about home loans here...