Search:

Are You Being Offered Too Much House?

The current crisis that the U.S. is facing is causing more and more people problems when they go looking for a home loan. However, there are still those fortunate few who sail through the waters of mortgage-hunting - perhaps a bit too easily. If you're being offered too much house, be very careful about accepting it at face value.

You should already know how much you can afford to spend on a mortgage. Your debt-to-income ratio is what most lenders will look at when they decide to approve you for a loan.

There are two DTIs that the lenders look at. The first is the front ratio and is the percentage of your income that goes towards housing costs. This is your X amount. The second is the back ratio and is the percentage of your income that goes towards your collective debt. Your mortgage/rent, student loans, car payment, child support, etc. comes under this. This is your Y amount.

The x/y ratio is what will determine how much of a mortgage you are offered by your lender - or it should. A common percentage is 28/36, meaning that, out of your monthly income, a 28% maximum should go for housing and 36% should go towards all your debts, leaving at least 64% for living expenses, savings and entertainment.

These percentages aren't just pulled out of the air, either. 60% of your income might sound like a lot - it might be a lot - but it can disappear pretty fast what with the expenses of day-to-day living. We're also assuming that you're saving money - for emergencies, for a down payment, etc. and that takes a significant amount of money. There's also the chance that, if you lose your job, for whatever reason, you are likely to pick one up for roughly the same amount of income, thus making foreclosure less of a risk.

It is a great temptation for some people to own their "dream house" and some lenders capitalize on this with adjustable rate mortgages, interest-only mortgages and other forms of mortgage that go well beyond the ability of many people to pay if the interest rate changes or if they fall on hard times.

Real estate agents, too, have been known to urge potential homeowners to get a house that is at the maximum of their approved mortgage limit. This may result in a bigger commission for the agent, but it isn't always in the best interest of the home owner.

We all want to own our version of a 'dream home', but taking risks with credit, finances and quality life isn't the way to do it. Investing in a home well within your means may not net you the ideal residence, but it puts your foot in the door for eventually affording something better down the road.

Article Source: http://www.articleyard.com

Information about the Author:

Joshua Sloan is your San Diego real estate agent at SanDiegoRealEstateBuzz.com. If you're looking for Del Mar real estate for sale, Joshua can help.