Affordable homes provide a manageable payment for first-time homebuyers. However, every homebuyer will have a unique financial situation. Before shopping for a new home, a prospective buyer can discuss salary details with a loan officer to learn about affordable housing options.
Qualifying to Buy a Home
Mortgage lenders are highly motivated to fund home loans for qualified buyers.
It is important to understand that a lender will look at a borrower’s salary and other variables, too.
A borrower’s credit history, credit score, debt load, down payment amount and the financial reserves that will be available after the loan has funded are also top considerations for a home loan approval.
To determine an affordable portion of a borrower’s salary to use toward paying for a home, a debt-to-income calculation will be performed.
Mortgage lenders use industry-recognized metrics to compute a borrower’s debt-to-income ratio.
When the calculation is performed, a borrower’s monthly debts (excluding utilities) are combined and divided by the borrower’s gross monthly income.
For instance, if a proposed mortgage payment of $1,500 per month is added with an auto payment of $350 and $250 in monthly credit card bills, the borrower’s monthly debt will equal $2,100 per month.
A borrower who earns $7,000 per month and has monthly debts of $2,100 will have a debt-to-income ratio of 30 percent.
A debt-to-income ratio of 30 percent is considered affordable and an acceptable risk level for most mortgage lenders.
While information about debt-to-income ratios are available online, many borrowers may have questions, such as “What specific salary is needed to buy a home in my area?”
And, “How much can I afford for an FHA loan?”
Or, “How much can I afford for a VA mortgage loan?”
Conventional home loans have debt-to-income ratio thresholds of 36 percent and government-backed mortgage guidelines recommend an acceptable DTI of 43 percent.
However, a borrower with a substantial amount of disposable income or extensive financial reserves could be approved for a mortgage loan with a debt-to-income ratio that exceeds 50 percent.
A basic calculation may be performed to obtain a ballpark figure for an affordable housing price range.
Although, speaking with an experienced loan officer about getting pre-approved to buy a home will result in a more accurate estimate.
Additionally, real estate agents and home sellers will prefer a written pre-approval from a mortgage professional versus a buyer’s self-analysis.
Contact Right Start Mortgage to inquire about qualifying to buy a home.
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.