Make Sure To Only Apply For A Fixed Rate Mortgage

Category: Finance, Mortgages.

The real estate market is full of bargains these days. So, when you re out there looking for a home, the big question is, "for my mortgage, how much can I borrow? " While the answer may be delightfully surprising, the real test comes when you figure out how much you can truly afford.

Homes that sold for$ 500, 000 a year or so ago can probably be picked up for less today because the housing market has become soft or has turned into what is known as a buyer s market. Therefore, in this article we will give you the information you need to determine how large of a mortgage you can make the payments on and then you can go look for your dream house. The way the real estate mortgage market works today is anybody with decent credit can get a mortgage for just about any amount he asks for. How much you borrow is up to you. It s really gotten crazy! This is what you want to avoid. Through negative amortization mortgages people have gotten mortgages for way more than they could afford and they were actually talked into this overextending of themselves by the lenders.

The lenders make more money for each additional dollar they lend you. After that it s up to you. Realtors have absolutely no motive to try to make sure you can make your mortgage payments because they get their percentage at closing. Personally, I believe the buyer having this information will make much better choices than a lender or a realtor would make. Back in the 1980 s, they used to determine how large a mortgage a potential homebuyer could afford by using the 28/ 36% rule. The 28/ 36% rule. Using this rule, the lender would first find out if the applicant had any debt before the purchase of the property.

If the applicant had none, the lender would multiply the applicant s total monthly income by 36% . This debt would include car payments and credit card payments. The monthly income would be the yearly income divided by 1Though this might seem like an oversimplification, it is calculated that way instead of using 4 weekly paychecks as a month or 2 biweekly paychecks as a month because this amount would be smaller than the true monthly pay received. This would be the amount of the monthly payment the applicant would be allowed to borrow up to. So, if someone made$ 6, 000 a month, it would be multiplied by. 36, which would give an answer of$ 2, 160 per month. They would use this amount without adding on taxes or homeowner s insurance. $2, 160 a month would pay for a mortgage of$ 324, if the mortgage, 000 interest rate was 7% and the term of the mortgage was 30 years. What about that car payment?

The standard in the lending business is the mortgage can be up to 80% of the price of the property, so the price of the property could be as high as$ 405, the buyer would, 00Of course need an$ 81, 000 down payment. If the applicant had other monthly obligations, such as a car payment, the lender would use 28% of the monthly income. I am a proponent of the 28/ 36% rule. In this case, the applicant could make monthly payments of up to$ 1, 68If again, the rate was 7% and the term was 30 years, $252, 000 could be borrowed. It is more liberal than the old standard from the 50 s, which was not to take on any larger monthly obligations than the amount of your weekly paycheck, but the 28/ 36% rule does give a proven guideline. Make sure to only apply for a fixed rate mortgage.

There is one last word of caution. These days, lenders will qualify people at some low introductory rate and then a year down the road the minimum monthly payment rises to well above the amount the applicant was approved for. Get a fixed rate mortgage only and there will be no future life ruining surprises. Don t go there!

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