You’ve made an appointment with a loan officer to ask about buying a home. What’s the first question they’ll ask?
A mortgage lender probably wants to know what you can afford. Or, at least what you think you can afford based on your finances. But how do you know?
Online mortgage calculators are helpful tools, but, ultimately, you should speak with a professional to understand how your specific circumstances might play into your ability to buy. Credit score, down payment and monthly income are all determining factors.
Talking to a pro is your best bet, but here are a couple things to consider when weighing your options as a prospective homebuyer.
For starters, it’s important to know how much you should be spending on a mortgage payment each month. Sunrise Banks Director of Mortgage Sales Chuck Meier says a general rule of thumb is using the 28/36 ratio.
The 28/36 ratio states no more than 28 percent of your gross monthly income should go to a mortgage payment, and your total debt load shouldn’t be more than 36 percent of your gross monthly take-home pay.
That means that, hypothetically, someone who brings in $10,000 each month shouldn’t pay more than $2,800 on their mortgage or $3,600 on total debt expenses. By total debt, we mean any other payments you’re making on top of your mortgage cost. This could be a car loan, student debt or credit card payment.
Meier said the 28/36 ratio can fluctuate depending on your financial situation.
“With a better credit score you can go above and beyond these ratios,” said Meier. “If your credit score is around 740 or above, some companies will let your total debt load be 45% of your gross monthly income.”
Closing Costs and Other Considerations
Another thing to consider: Your down payment to purchase the home isn’t the only cost involved, as there will be closing costs and prepaid costs to set up escrow as well.
Meier says that you can expect another 2-3% for closing costs and prepaid expenses. Closing costs include appraisal, title fees and lender fees, to name a few. Prepaid costs are upfront fees paid to set up escrow accounts for taxes and insurance.
He added that a prospective buyer’s financial planning plays a roll, too.
“Do you have kids? Are you having a family? Saving for retirement?” Meier asked. “You can’t be strapped to make a payment. That’s why it’s always important to meet with a loan officer in person. They can bring up different points surrounding your situation.”
Meier added that a mortgage lender will look to help clients “buy as much house as possible” while maintaining a level of disposable income that allows buyers to retain quality of life and remain financially healthy.
“A physician that’s just starting out – they’ll make more money fairly quickly, so you might want to guide them to maximize their qualifications right off the bat.” said Meier.
Making Homeownership Attainable for All
Sunrise Banks strives to make homeownership an option for everyone. And that’s why, as Meier points out, our lenders will help devise strategies for those who aren’t quite ready to purchase a home.
Meier said he might talk with some clients about ways to raise their credit score, like taking out a credit card and making payments on a monthly basis. Someone might also be a good participant for our Credit Builder program.
“We’re not turning them down, but rather positioning them to come back to us in the future,” said Meier. “You don’t want to go through all the red tape and then have to deny them.”
Our goal is to help you work towards owning a home; and a big part of that is thoroughly explaining the process and your options.
Reach out to a mortgage officer today to learn more.