| How much can you afford? |
STEAMBOAT PILOT & TODAYBefore you shop for a new home, one of the first things you need to determine is which homes are in your price range. The amount of home you qualify for is based on your monthly income, monthly debt and the amount you can put down for a down payment. Lenders use “qualifying ratios” to determine a safe amount to loan a potential homeowner. A standard ratio is 33/38, but ratios can vary depending on the lender, said Lynn Reiff, mortgage consultant with Wells Fargo Home Mortgage in Steamboat Springs. For example, the FHA uses a ratio of 29/41. “The 33/38 ratio is the basic, but depending on how good your credit score is and how much money you are putting down and how many cash assets you have, we could go higher,” Reiff said. In the ratio, the first number is the “front ratio.” This is the maximum percentage of your monthly gross income that will be spent on monthly housing costs, including principal, interest, taxes, insurance and any Homeowner’s Association fees. In the example ratio cited above, you can’t spend more than 33 percent or one third of your income on housing costs. The second number is the “back ratio.” This is the total of all your consumer debts - car payments, credit card payments, students loans etc... - as a percentage of your monthly income. A “38” back ratio means that, as a maximum, this figure should be thirty-eight percent of your monthly income. In the 33/38 ration example, if you make $5,000 a month, your maximum monthly housing cost should be around $1,650. Including your consumer debt, your monthly housing and credit expenditures should be around $1,900 as a maximum. Once you know your maximum monthly payments, you subtract. You have to do a little estimating, too. Estimate what your monthly taxes and insurance will be and subtract them from your maximum payment. That leaves you with the principal and interest payment. Once you know the principal and interest payment, you can use our loan calculator to determine how much house you can afford. If you don’t want to do the math yourself, there are numerous mortgage lenders in Northwest Colorado who can quickly help you determine your maximum home loan and can pre-qualify you for a loan. Reiff said to pre-qualify a potential homeowner, she looks at income, debt and down payment. Generally, Reiff said, she does not pull a credit report until there is an actual loan application.
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