How much mortgage I can afford is a question that every individual asks when he wants to settle in his life and is ready to start a family. There are numerous factors that affect the mortgage that a person can afford. It is important to understand these factors and know how one can leverage them to assist them in their mortgage.
One way to go about is calculating the income versus the debt ratio. This way one can evaluate how much of his monthly income is spent over the existing debts and how much is left over for the mortgage payment plan. The income left after existing debts and potential mortgage should be enough to cover the taxes and living expenses. It is also very important to set aside a small chunk of savings for any unexpected expenses, repairs or financial problems.
10 factors that affect the amount of mortgage an individual can afford are listed below:
Annual income plays a big role. The gross annual income for you and any co-borrowers combined before any taxes, bonuses, commissions, rental income, tips, overtime, child support, alimony, or any other investment income. It is important to exclude the extra income and deductions from the basic salary because these are usually conditional. One might not get same amount of commissions every month. Commissions or overtime are not consistent. To count extra income when calculating mortgage would only overstate the amount available after basic expenses and existing debts.
People take on several debts which sometimes create a monumental amount of debt to pay off every month. Credit cards, alimony or child support, student loans, car payments, any rental payments make up the monthly debt amount. This debt amount directly effects mortgage as mortgage is acquired on the annual income remaining after these are paid off. It could become exceedingly difficult for a person to get a mortgage on a property if his monthly debts keep on piling up.
Down payment is the amount that a person has to pay when getting a mortgage. This amount serves as the initial payment. The amount paid for the down payment is sizeable and one should have enough money left after making the down payment to pay for any unexpected financial problems or repairs to the house.
For the mortgage a person receives on a property, a fixed percentage of interest is charged. This effects the over all payment plan.
Loan term is the length of time which a person chooses to pay off his debt against property. Loan term dictates how much mortgage a person can get. If someone wants to get mortgage for 50 years, the amount of mortgage payments he will have to make each month us like to be low where as if he wants to get mortgage for 10 or 15 years, the payment paid for mortgage every month including the interest will be higher.
6.Mortgage insurance (PMI)
Mortgage insurance is also called Private Mortgage Insurance (PMI). Home owners who pay less than 20% of down payment for the mortgage are required to get the mortgage insurance. It provides cushion to the lender and results in no or little loss if the borrower does not pay the mortgage, goes broke or files bankruptcy.
Incomes tax is the annual tax charged upon each individual’s annual income. Rate and percentage for income tax changes from state to state but is generally 30% in most of the states. Annual income tax also depends upon the annual income of a person.
When calculating the mortgage value, estimated property tax is included within. This estimated tax is calculated on the value of home owner’s property on which he is acquiring mortgage.
Homeowner’s insurance is commonly known as hazard insurance. Homeowners insurance provides assistance and shield against damages to the property in case of events like water burglary, damage, fire, explosions, storms, vandalism or lightening. Homeowner’s insurance, contains personal injury coverage which gives a homeowner protection against lawsuits when there are injuries on the property.
Homeowner’s association dues are charged to the condo or townhome owners. These charges are for services provided like snow removal, landscaping, garbage collection or pool repairs and maintenance.
For quick and easy calculation use our mortgage calculator.