Buying a house can be a fun and exciting time in your life. There are a lot of things to think about, like the number of rooms and bathrooms, the neighbourhood, and the schools. But how much a person can pay for a house may be the most important thing to think about. Most homeowners can afford a mortgage loan that is 2-2.5 times their gross income, as a general rule. This means that a family making $100,000 a year could probably buy a home for $200,000 to $250,000. This is, without a doubt, a broad statement. There are other things to think about as well.
Lenders look at more than just a person's gross income when they decide whether or not to give them a loan. They also pay close attention to the buyer's front-end and back-end ratios and how much of a down payment they can make. We'll look more closely at what these things are and why they matter.
Front-end ratio: The front-end ratio is the percentage of a person's gross income that will go toward the monthly mortgage payment. There are four parts to a mortgage: the principal, the interest, taxes, and insurance. Most lenders don't want the front-end ratio to be more than 28%. This means that a person's mortgage payment shouldn't be more than 28% of their monthly income.
Back-end ratio: The back-end ratio shows how much of a person's gross income is needed to pay off debts. This includes the mortgage, credit card payments, child support, and other bills. Most mortgage companies want this number to be less than 36% of a person's gross income.
- A down payment: Lenders want to see at least a 20% down payment. If the buyer puts down this much, they won't have to pay the pricey mortgage insurance.
Buying a home can be a very rewarding thing to do. It's a big deal and a dream come true for many people. But it can also be pricey, so a person's whole financial situation needs to be taken into account. One must think about not only their income, but also their expenses, debt, way of life, and personality. After carefully and fully thinking about all of these things, one is ready to buy a home.
