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Tips on Determining Mortgage Affordability Many first-time home buyers hear how much a home they are looking at costs and guffaw at the price tag. People being surprised at the prices they are seeing on real estate signs is a perfectly natural reaction as the price of homes has gone up steadily over the years. This is especially true in some of the more popular cities in the country where many people want to live. Many prospective homeowners then begin to wonder if they can afford some of the enormous prices they are hearing about during their search. Thinking about affordability is a sign of financial intelligence because no one wants to purchase a home that they find is too expensive for their budget and they end up dealing with a foreclosure notice being sent in the mail or put on the front door. Defaulting on a home loan can cause a lot of financial distress and a damaged credit report for a long time. Some can only save their homes by filing for bankruptcy and trying to figure out a way to get out of debt while they are going through the bankruptcy process. Being smart about any financial decisions that you make is important to staying in the black and having the ability to pay your bills without any concern or issue. A generally accepted method of finding out affordability is to multiple your yearly gross income by two and that figure is your target home buying price. It is important to know what lenders think you can afford when you head in to apply for a mortgage. Companies that lend money for mortgages will check your debt-to-income ratio to see what amount you could most likely afford as that can help limit their risk for loaning out to people. Debt-to-income ratio is determined using debts such as credit cards, child support payments, alimony payments, and car loans that you may have. Mortgage companies don’t want you to buy a home that is too expensive for your budget because they worry about defaults.
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A good down payment of around twenty percent can make it easier to afford the mortgage overall. Most lenders only expect a five percent or less down payment in order to get the mortgage approved. People should add up their monthly expenses and bills to help figure out how much of a mortgage you can afford. Mortgage affordability can be figured out using your own budget numbers as well as implementing the lender calculations that are used by mortgage companies to determine it.Smart Ideas: Lenders Revisited