Tag Archive for Mortgage
Before you embark on your home search, your first consideration should be how much you can afford to pay. You need to establish what your monthly payments should be and that means understanding how your usable income is calculated.
The starting point of any income calculation begins with gross, or before-tax, income. Regardless of what you take home each month, your lender will always want to know your salary before any withholdings.
Debt-to-Income “DTI” Ratio
After your gross income is calculated, monthly debt is subtracted. This debt includes rent or mortgage payments, car payments, credit card debt, student loans and other kinds of loans. Many people ask if debt includes other monthly expenses such as utility bills or gas for the car, and the answer is no – these are not included in your ratios.
While your mortgage professional will give you the exact numbers you will use to qualify, a good rule of thumb is to keep your payments between 40% and 45% of your gross income, less expenses.
For example, if your gross income is $3,000 a month and you have car payments and credit card balances for a total debt of $500 a month, your usable income is $3,000 minus $500, or $2,500 a month. Taking $2,500 x 40% and 45%, you arrive at a total mortgage payment between $1,000 and $1,125 per month.
If you keep these figures front and center during your home search, you won’t fall for a home that’s beyond your means. We understand that the home-buying experience may seem daunting, that is why our Guidance Realty Homes real estate agents are here to help you embark on this journey and even help you calculate your affordability. Also, if you use our preferred home financing provider, Guidance Residential, you’re eligible for more discounts and savings.
With all the talk about foreclosures these days, a basic overview of some of the terminology might be helpful.
When a property is in foreclosure, it means that the lender has started legal proceedings to take back the property from the borrower.
A borrower is considered to be in default when he or she misses even one payment, but lenders typically start proceedings after three missed payments. Depending on the state where the property is located, the court system may be involved.
The period of time from when the borrower misses the first payment to when the lender starts the foreclosure proceedings is called the pre-foreclosure period. A number of things can happen at this point. The borrower and the lender can sit down and come up with some type of loan modification agreement, by which the terms of the loan can be altered, at least for a certain period of time, to allow the borrower to get into a better financial position.
If the borrower can find someone who wants to, and is able to, buy the property, he or she can sell. If the amount the person wants to pay is less than the borrower owes and the lender will take that amount, it is called a short sale. Once the foreclosure proceedings have started, however, the lender will be the only one that is able to sell the property.
If the borrower and lender agree that the borrower will turn the property back over to the lender, then walk away – without going through the foreclosure process, a deed in lieu of foreclosure takes place.
For more Real Estate news be sure to go to our to: GuidanceRealtyHomes/blog