Part 3c: Your Annual Income: Introduction to the Debt-to-Income Ratio

How Does My Annual Income Affect My Rate?

Your annual income will not affect the rate of your loan, but it will affect the amount the lender will be comfortable giving you. A mortgage lender will be more apprehensive lending out a loan that they determined would be difficult for the borrower to repay, when including their other debts and required monthly payments. A calculation that is used by lenders to determine income eligibility is the debt-to-income ratio. The Debt-to-income ratio is a guideline used by the lender to determine exactly what percentage of income to debts is acceptable.

For example, a borrower applies for a loan that results in a \$1000 mortgage, but also has car payments for \$250 and homeowner’s insurance payments for \$150. Using this example, the amount of “debt” they owe per month is \$1500. If the borrower has a monthly income of \$4500, then the debt-to-income ratio would be 33% (Required monthly debt payments divided by monthly income, or \$1500/\$4500 = 1/3 or  33.33%). The magic number most lenders will look for is 43%, but depending on the lender, a loan may be approved to a borrower with a higher debt-to-income ratio if they have proven their ability to pay their debts on time.  So while a higher debt-to-income ratio may exclude certain high-risk borrowers from receiving the loan entirely, this will not increase or decrease the rate given for the loan.

In the next update, we will be discussing the different loan programs that are available and which program would be the best for you!

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Part 3b: Credit-worthiness and You

Part 3b: Credit-worthiness and You

Credit-worthiness

But what if I don’t have credit?

If you don’t have credit it is still possible to obtain a mortgage. The mortgage lender will use other factors to determine your ability to repay a loan. For example, if you pay rent to a private landlord, this will most likely not show up on your credit. However, you can use this to show evidence that you would be a perfect borrower by your ability to pay rent on time. Another way is to use what is called an “Alternative Trade,” which, for example, is a bill like insurance, cable/internet, or cell phone that would show your ability to pay on time. Usually for both of these options, the lender may require at least 12 months of verification for on-time payments as proof of your credit-worthiness.

In the part 3C, we will be introducing the Debt-to-income or DTI that all lenders use to qualify borrowers. Please click the link below to hop right in!

Part 3C: Annual Income and Debt-to-Income Ratio

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Part 3(a) of Beginner’s Guide To The Home Buying Process: Shopping for Home Loans

Part 3a: Shopping for Home Loans:

In the first part of this series, we discussed the intricacies of looking for a home, all of the ideal situations you would want to look for when determining where your perfect home should be, and what it should include. In this part, we will be discussing more about shopping for loans. This has a bit more information to cover so we will be splitting this up into two parts.

Shopping for loans is a very important step of the home-buying process. How much you’re approved for will ultimately determine your total expense for your purchase. While you want to be approved for the full amount of the home, different lenders will have different requirements and qualifications to obtain home loans with lower rates. These lower rates are based on the borrower’s credit-worthiness, employment, and other factors. We will be going over some of those factors.

Where should I be getting my Mortgage loan from?

The easy answer to this is whichever lender will give you the lowest rate. This rate will be based on several factors, some of which were mentioned above. It is okay to ask questions about the requirements for a better rate. One of the biggest indicators of how much your interest rate will be is your credit score. Most lenders won’t even loan to you if you aren’t above a certain credit score, with some loan programs that will cater to those with less-than-stellar credit histories.  Other indicators include your annual income, what your down-payment will be, and your current debt-to-income ratio.

We will be taking a closer look into each of these categories in the upcoming updates!

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Part 2: Shopping for a Home: How Much is My Home Going to Cost?

Part 2: Shopping for a Home

It’s All About Location, Location, Location!

Finding the perfect location may be a balance of several factors. Whether you are looking for an up-size for your growing family, a shorter daily commute to work, and/or the quick retreat to the hobbies that you enjoy, it will be important to choose the perfect location for your home. If you have children, for example, you are going to want a location that will be safe for them. It may be important that they are able to safely walk to and from school or the school bus. You may be a bit more concerned about crime rate in a particular neighborhood. Additionally, you may want a yard for them to play in.

How Much Will My Dream Home Cost? And Why?

Your location will be the biggest impact on the actual cost of your home. However, with the aforementioned benefits, these perks may outweigh the initial investment. One of the largest impacts to a home’s value is location! How close your home is to social, shopping, or more touristy attractions will greatly impact the value of your home. The closer you are to these destinations, the more you will pay. The key is to find the perfect balance of cost and location to the activities you like to do the most.

Another impact on the cost of your home will be the actual size of the home. The more square footage your home occupies, the more you will be paying. Most listings will actually have a cost per square-footage ratio to help you make comparisons between ideal homes. Simply put, a home with three or four bedrooms, each with an accompanying bathroom will most likely cost more than a home with one bedroom and one bath. Remember, this may not always be the case due to location being the biggest impact on possible cost. A one-bedroom one-bath, eight-hundred square-foot home on the beach may cost several times more than a three bedroom with three bathrooms more inland, in more rural areas.

If your home has been recently remodeled or upgraded, this will also increase the cost. If you have a kitchen with brand-new stainless steel appliances, granite counter-tops, washer/dryer, and a Jacuzzi in the master bathroom, these costs will most likely be factored into the price of the home.

Additionally, you can have amenities in your home that would also be factored into the price. For example, if you have basketball court in your backyard along with an in-ground pool with a screen-enclosure, you will most definitely be paying for these amenities.

Overall, the balance between all of these will be important in determining what you would like to pay for your dream home. You may need to compare the price of installing any additional upgrades or amenities yourself after the purchase of the home,  which may actually cost you less, while also increasing the value of your home. A good example of an upgrade that will greatly increase the value of your home is upgrading the kitchen after purchase.

Next, we’ll be going into the intricacies of shopping for a HOME LOAN.

Part 3A: Beginner’s Guide To the Home Buying Process: Shopping for Home Loans:

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Part I: The Beginner’s Guide to Home-Buying Process

Are you looking to purchase your first home? Does the process seem overwhelming? What if I told you that the process may be much simpler than you think?

One of the biggest dreams is home-ownership. This dream may come with different reasons behind it: It may be the desire to avoid paying rent, which is similar to a black hole for the hard-earned dollar. It also maybe the yearning for having a place big enough for a family. Whatever your reason is, this guide is to help break-down the process for you and help make you more prepared for that decision to become a home-owner.

Purchasing a home can be generalized into four categories

• Shopping For A Home
1. Finding a home within your price-range with the amenities you want.
• Shopping for a loan
1. Figuring out which loan programs you should be applying for, and the differences between them.
• Choosing an Agent
1. Having someone that will assist you when attempting to purchase the home, negotiate your purchase contract, and other necessities. This will contain more of the legal aspect of the home-buying process.
• Closing
1. The final steps in obtaining the keys to your new home.

Shopping For A Home

We’ll be going over the first part of the home-buyer’s experience, Shopping For a Home. Shopping for a home may be the easiest or the hardest part of the process depending on what you’re looking for. Here are some major factors to keep in mind:

• Location
• Price and Amenities

We will be going into both of these topics in Part 2: How Much Is My Home Going to Cost?

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