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HOW MUCH OF A MORTGAGE CAN YOU AFFORD?
There are two basic formulas to use with a calculator for mortgage commonly used by lenders to determine how large of a mortgage you can reasonably afford. These formulas are called qualifying ratios, because they estimate the amount of money you should spend on mortgage payments in relation to your income and other expenses.
We know here at Avrus SM it is important to follow ratios that may vary from lender to lender and each application is handled on an individual basis, so the guidelines are just that — guidelines. There are many affordable housing programs, both government and conventional, those that have shown more mercy and tolerance for low- and moderate-income families. Many of these programs involve financial counseling to help potential first time home buyer learn about the financial responsibilities of owning a home.
To receive a mortgage rate quote, or to qualify for conventional loans, housing expenses should not exceed 28 percent of your gross monthly income. For FHA loans, the ratio is 29 percent of gross monthly income. Monthly housing costs include the mortgage principal, interest, taxes and insurance — often abbreviated PITI. For example, if your annual income is $30,000, your gross monthly income is $2,500, and $2,500 x 28 percent = $700. So you would probably qualify for a conventional home loan that requires monthly payments of $700.