Want to know more about the mortgage process?

The average consumer can usually use this formula for determining their house payment:

Gross monthly income x .28

For example, John and Jane make $60,000 per year together and before taxes.

$60,000 / 12 months = $5,000 per month of gross income
$5,000 x .28 = $1,400 per month John and Jane can spend on their mortgage, including taxes and insurance

Why 28%? Most mortgage companies in this area use a 28/36 qualifying ratio to help them determine how much they will lend you. The first number in that pair, 28, is the percentage of your gross income that the lender would be "comfortable" loaning you. Sounds great, right? Read on - this is where the second number in the pair comes along. This is what gets most people. No more than 36% of your gross income, including the mortgage expense, should be used to pay of debt. For example, John and Jane together have $500 in car payments and $150 in student loans.

$5,000 x .36 = $1,800
Subtract the $650 in monthly debt from $1,800 = $1,150

The lender chooses the lower number in deciding what amount to loan you.

The more debt you already have, the less of a mortgage you qualify for. So it makes a lot of sense to minimize your debt before beginning the search for a home. Why? The homebuying process is a rigorous one. It is imperative to know how much house you can afford and want to buy so that you can focus on the houses in your price range, rather than looking in a higher price range, finding out you need to buy lower. Having to lower your expectations can bring about feelings of disappointment and tend to make the process much harder than it needs to be. It minimizes the research work you have to do, the amount of homes you have to tour and the amount of decision-making you have to do.

You can always ask me for advice on homebuying preparation and recommendations of reputable lenders in our area.