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There are several things you need to do to get a fair enough agreement on a mortgage: improving your credit score, cleaning of most of your debts, save for the down payment, looking for a broker mortgage to buy a house, etc. But these are all useless without knowing exactly how much loan you can afford because you can not obtain authorization for the amount you need if you can not repay your company mortgage. So if you want to own a dream home, you need to know how much dream you can afford. But mortgage companies do not really care much about you and preference for a house as they care more about your ability to repay what you borrow from them. And they need to know by reviewing your credit history, your gross monthly income, and how much money you have for the down payment.

Tips for buying home.

Careful planning is the secret of a home purchase successful. Do your research in advance and follow the evolution of interest rates. A correct projection of future interest rate yields the right selection of mortgage house. Also, the cleaning of your debts you will definitely get a good price as it improves your credit history, which is one of the bases of calculation of interest rates. It is also wise to start saving at least a few hundred dollars a few months before shopping for a mortgage. This will prepare you for future financial duress to pay the mortgage.

What type of mortgage suits your budget?

There are two basic types of home mortgage: fixed-rate mortgage and adjustable rate mortgage. Each has its own characteristics and the method of calculating the rate, which is one of the decisive factors for borrowers to favor one type of home mortgage on the other. The fixed rate mortgage offers a relatively higher rate of interest on adjustable rate mortgage. This is because loan losses to offset a possible future increase in interest rates since the mortgage payment remains the same regardless of changes in interest rates on the market.

During this time, fixed-rate mortgages less affordable than the arm. Despite this, fixed-rate mortgage offers several significant benefits. One, fixed-rate mortgage releases the borrower to worry about future increases in interest rates, which in turn would result in higher mortgage payments and make the mortgage suddenly unaffordable . Two fixed-rate mortgage may be cheaper if the interest rate will abruptly. And three, fixed-rate mortgage offers a payment plan since the predictable monthly mortgage does not change.

The variable rate mortgage, on the other hand, is more affordable compared to fixed rate loan for the reason that it offers lower interest rates. In addition, the borrower can easily qualify for bigger loans because the amount of the payment and the mortgage rate is lower. However, due to the variable interest rate, the mortgage may suddenly become unaffordable when the interest rate rises.

To find out how much you can afford you need to know two things: your front-end ratio and your back-end ratio.

The front ratio.

In general, your monthly mortgage payments, including homeowners insurance, property taxes, capital and mortgage should not exceed 28% of your gross monthly income. Use the following formula: annual salary x 0.28 / 12 (per month). So if you earn $ 30,000 per year multiplied with 0.28, divide by 12, the ratio of your front is equal to $ 700. In short, you can afford a loan with a monthly payment of $ 700.

Back-end ratio

The back end is the ratio of total debt to income should not exceed 36%. It is your total debt, including your mortgage, debt obligations, child support, car loans, credit cards, loans, children, etc. debt to income ratio allowable is the annual salary x 0.36 / 12 (per month). So from your $ 30,000 annual income, your eligible debt to income ratio is $ 900. Meaning, if your monthly mortgage payment is already $ 700, your other debts should not exceed $ 200.

Calculator.

Know exactly how much you can afford will require you to use mortgage calculator. It is free and easy to use online calculations where you can get the exact number you need.