When you are preparing to buy the home of your dreams, the first step is to talk to a real estate agent and a lender to learn more about the homes that are in your price range. This information can be helpful so that you can plan a budget that will work for your family in the future. So, you need to consider the size of the loan that you can afford to determine the type of home that you can buy.
What is a Debt-to-Income Ratio?
One of the factors that your lender will consider is the ratio of debt and income that you are carrying. A big income doesn’t necessarily mean that you can afford a large home. If you are already leveraged with other debt obligations, then it will have an impact on the size of the loan that you can get from the lender.
To calculate your debt-to-income ratio, you need to calculate the monthly debt payments and compare that number with your gross monthly income. This figure helps lenders to determine if you will be able to manage the mortgage payments that will need to be made each month.
Why Does Your Debt Load Matter?
Historical evidence has shown that borrowers with a high debt-to-income ratio have a harder time making their monthly payments. The requirements are different for each lender. Generally, lenders are looking to keep your ratio below 43% if you want to qualify for a mortgage.
If you are carrying a lot of consumer debt in the form of credit cards, car payments, student loans, medical bills, etc., then your lender might reduce the size of the loan to keep your ratios in check. Each lender sets their qualification guidelines, so there might be exceptions that apply to your situation. The best solution is to talk to your lender to learn more about your individual situation.
Preparing for a Home Mortgage
Are you planning to buy a home? Then, then it is important that you focus on paying down your debts so that you can qualify for the mortgage that is needed to buy the home of your dreams. Reducing your credit card balances and car loans will decrease your debt-to-income ratio, freeing up more room for a bigger mortgage.
Put together a budget and look for ways that you can pay down the balances before you apply for a loan. Not only will these steps help with your ratio, but they can also be beneficial to boost your credit score.
When you are ready to buy a home, then you need to talk to the best real estate team in Atlanta: DUFFY Realty. We are here to help with anything that you need! Contact our office to schedule an appointment and learn more about buying or selling your home: (678) 318-1700