Read This Befor Submitting Your Mortgage Application

    Searching the web for your dream home, deciding how many bedrooms you want, and picking out a paint color that speaks to you? It is so tempting to get ahead of yourself once the idea of buying a home crosses your mind. But before you start surfing the web for cabana houses in Hawaii, we need to roll up our sleeves and get down to the nitty gritty.

The heart and the beginning stage of home buying is  your mortgage application. So before you start turning the house upside down looking for your last four years of W-2’s or your 2011 tax returns lets see what we can afford or if we are even ready to make such a serious purchase. When lenders are deciding whether to lend you money or not, they look at your debt-to-income ratio. It’s not as hard as it sounds, defiantly easier than searching for your 2011 tax return. Basically, you add up your monthly debt and divide it by your monthly income, and multiply by 100.

Example:

Recurring monthly debt:    475.00

Gross monthly income:      1,500.00

475.00 DIVIDED BY 1,500.00 = 0.316666667

0.316666667 X 100 = 31.6666667

Round that to 32% and you have your Debt-To-Income ration. Generally you would want to keep it under 36%, the lower it is the greater chance you will be able to get the loan you are seeking.

Another simple way to calculate how much you can afford on a mortgage payment every month is to subtract your monthly debt from your monthly income

            Example:

            Monthly income:     1,500.00

            Monthly debt:            – 475.00

                                           ————–

                                                            1,025.00

1,025.00 is how much you can afford per month on a mortgage loan.

One tool that I use on a daily bases with my clients is an App called Mortgage Calculator by Quicken Loans, and its FREE from the App Store. The Quicken Loans Mortgage Calculator provides you with key information that will give you a rough estimate on your Home Affordability. When initially opening the app you are prompted to insert your Purchase Price then your Estimated Down payment, the interest rate is profiled based on Quicken Loans Current Market rate. You are then asked to enter you term or how long you would want your loan either 15 years or 30 years, then you enter the estimated property taxes and Insurance. Now this does not include Home Owner Association Dues or FHA Mortgage insurance so I typically add an additional $100-$200 to the monthly payment for high estimate of what your mortgage payment would be.

Another Section of this app titled the HOME AFFORDABILITY section just 3 quick swipes to the left color coded purple lets you input your income (annual) along with your monthly Debt, estimated taxes and insurance. Once you fill this out it gives you and estimated Purchase Price. Once again this does not include Home Owners Association or the FHA Mortgage insurance, because of this I would add and extra $100-$200 to your monthly debt for a more accurate Purchase Price.