Your monthly mortgage payment of principal, interest, taxes and insurance (PITI) should not exceed 25 to 28% of your monthly gross income.
Your monthly housing cost (PITI) plus other long-term debt should not exceed 33 to 38% of your monthly gross income.
Specifically, most lenders will consider 4 key factors to determine your ability to qualify for a home loan:
Income – This first element can include not only your gross monthly income and secondary income (commissions, bonuses) but also your history of employment, stability of income, education, even potential for future earnings.
Credit History -- This encompasses your history of debt repayment, total outstanding debt, highest balance, and your highest monthly debt balance.
Assets – Your assets consist of cash on hand, savings and checking accounts, CDs, stocks, bonds or any other type of liquid asset.
Property – The home you are planning to purchase will be appraised to determine the market value. The estimated value must be sufficient to secure the loan. Lenders will loan you no more than a certain percentage (usually 95%) of this value.
Keep in mind that in addition to your down payment, you will also be responsible for paying fees for the loan and closing costs. These will be required at the time of closing unless you qualify and choose to have these included in your financing.
Closing Costs generally will range between 2 percent and 6 percent of the mortgage loan, depending on the loan and lender. You will be provided with a "Good Faith Estimate" of closing costs so you can know what to expect.
"Points", which are one-time charges equal to one percent of your loan amount, may be required by your lender at closing.
Your closing agent will charge a fee at the close of the sale.
I sincerely hope this information will help you gain a better understanding of the mortgage process. If I may be of any further service, please contact my office. I would consider it a privilege to be of service to you! If you would like a free consultation call me at:
office: 636-583-5900 fax: 636-583-6900 cell: 314-220-0783