Mortgage loan. Unless you won the lottery and can pay for your home upfront, in cash, you'll be applying for one. You'll be paying a little back every month until the loan is repaid. That monthly repayment amount consists of the principal (the original amount you borrowed from the lender), interest (or the cost that you will be charged for borrowing the principal amount), real estate taxes and homeowners insurance.
The total of your housing expenses alone should not exceed more than 28 percent of your gross monthly income. Whatever you owe (and because you have already done the credit report homework, you'll know this) for your car(s), credit cards, other loans, etc., should not exceed 36 to 40 percent of your gross monthly income. No need to include expenses for groceries or utilities. Sit down with a calculator and determine these amounts.
Use the following worksheet to calculate your debt-to-income ratio:
| Minimum monthly credit card payments*: | _____________ |
| + Monthly car loan payments: | _____________ |
| + Other monthly debt payments: | _____________ |
| + Expected mortgage payments: | _____________ |
| = Total: | _____________ |
| Your debt-to-income ratio: | |
| Total divided by monthly gross income = | _____________ |
Now, it's time to talk with a lender. Before you even step foot into one of those homes you've been viewing on the internet, you'll want to know exactly how much you can spend. Here's what you'll need for that meeting and for that ever expanding folder of information: proof of your current income, the amount of debt you're carrying each month, copies of your W-2's and income tax returns from the last three years, copies of pay stubs and bank statements and a copy of your credit report.
But, what kind of a mortgage? A fixed or adjustable? What type of a loan? Down payment? How do you find a mortgage lender?
Tomorrow's post will answer those questions.
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