Though it’s thrilling to gain the title of homeowner, it’s critical to understand the financial realities that come with this exciting, newfound responsibility. A mortgage catapults your finances into an entirely new realm and it’s important to grasp how it’ll impact your overall budget. The first step in this process is to seek council from an experienced loan officer and discover what you qualify for.
How Do I Qualify For A Mortgage?
The one factor a loan officer will check during the qualification process is your debt-to-income ratio. Once you provide the necessary documents, your loan officer will look at your monthly income versus your monthly debt. Your debt-to-income ratio is calculated by adding up your monthly debt payments and dividing that number by your gross monthly income.
Here’s an example from the Consumer Financial Protection Bureau:
If you pay $1,500 a month for your rent, and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2000. ($1,500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33 percent. ($2000 is 33 percent of $6,000.)
A high debt-to-income ratio suggests concerns making a monthly mortgage payment and may lead to problems repaying the loan. Any number below the standard 43 percent is generally considered acceptable when qualifying for a mortgage.
How Much Can I Afford?
Now that you have a better understanding of what a loan officer will look at, you’re probably wondering what you can realistically afford. The biggest element in determining what is obtainable will be the down payment you’re able to initially put down. Traditionally, 20 percent of the home’s asking price is standard – anything above the 20 percent benchmark almost guarantees a better rate or term. On the other hand, anything below 20 percent may require additional mortgage insurance to protect against potential default. However, don’t worry if you don’t have 20% to put down – PrimeLending offers a wide range of loan options that require low to no down payment.
Still have questions about the affordability of owning a home? Contact a PrimeLending Home Loan Expert or check out our Mortgage Calculators to determine what you can afford!
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Mandy Jordan is a seasoned professional with over 20 years of experience in the financial services industry, including 8 years in the mortgage industry. She has a true passion for writing and marketing communications strategy, and is known for her expertise in driving business growth, building relationships, and delivering results in highly competitive markets.
During her tenure at PrimeLending, Mandy has developed a deep understanding of the intricacies of the mortgage industry. Her comprehensive knowledge of loan products, underwriting guidelines, and compliance regulations has positioned her as a trusted advisor to her colleagues.
As a skilled writer and marketing communications strategist, Mandy has honed her ability to craft compelling and engaging content for a variety of mediums. Her strategic approach to content creation, combined with her creativity and attention to detail, has resulted in successful marketing campaigns, thought leadership pieces, and brand messaging that resonates with target audiences. She is also proficient in leveraging social media platforms and digital marketing tools to drive brand awareness and engagement.
Throughout her career, Mandy has been recognized for her exceptional communication skills, ability to work in cross-functional teams, and her unwavering commitment to delivering exceptional customer service. She has a track record of building and maintaining strong relationships with clients, partners, and stakeholders, and is often sought after for her strategic advice and guidance.
Mandy holds a Bachelor's degree in English from Southern Methodist University, and a Master’s in Business Administration with a focus on Marketing from The University of Texas at Austin. In her free time, Mandy enjoys writing creatively, reading, and volunteering for local non-profit organizations.
As a dynamic professional with a unique blend of experience in the mortgage industry, financial services, and marketing communications, Mandy Jordan continues to make significant contributions to the industry and is well-respected for her expertise, leadership, and unwavering commitment to excellence. Her warm demeanor, coupled with her wealth of experience and expertise, make her a trusted professional in her field.
