Here are the different factors at play:
Down Payment
Some mortgage loans require as little as 0-3% of the home’s price as your down payment. For other loans, 20% may be required to purchase a commercial property or to avoid Primary Mortgage Insurance (PMI). Your down payment reduces the total amount of your mortgage loan, so the more money you put down, the lower your payments will be – or the more expensive a house you can buy.
Interest Rate
This number is fluctuates daily with the current average mortgage rate. The historical average is 8%. Your actual rate will vary based on factors like credit score and down payment.
Loan Term
Your loan program can affect your interest rate and monthly payments. Typically, mortgages are 30-year fixed or 15-year fixed. That means your monthly payment will be the same, even for long-term loans, such as 30-year fixed-rate mortgages. Two benefits to this loan type are stability, and being able to calculate your total interest up front.
Adjustable-Rate Mortgages
Adjustable-rate mortgages (ARMs) have interest rates that can change over time. Typically they start out at a lower interest rate than a fixed-rate loan, and hold that rate for a set number of years, before changing interest rates from year to year. For example, if you have a 5/1 ARM, you will have the same interest rate for the first 5 years, and then your interest rate will change from year to year. The main benefit of an adjustable-rate loan is starting off with a lower interest rate.
Credit Score
People often want to know what “minimum score” is, and it completely depends on each situation. A lower score may be offset by a larger down payment, or a larger income; every person is different! The minimum score for several government programs is 640. If your score is lower, we may be able to direct you towards people who work with lower credit.
Property Tax
Your future taxes depend on the sale price of the home and the specific municipality. Your SEV is half the sale price of the home. You can use this calculator here.
Your Budget
No matter what a lender approves you for, stick to your budget and the amount that feels right for your situation. You know your household’s expenses better than anyone else.
Annual Income
This is the combined annual income for you and your co-borrower. Include all income before taxes, including base salary, commissions, bonuses, overtime, tips, rental income, investment income, alimony, child support, etc.
Debt-to-Income (DTI)
Your DTI is expressed as a percentage and is your total “minimum” monthly debt divided by your gross monthly income. The conventional limit for DTI is 36% of your monthly income, but this could be as high as 41% for FHA loans. A DTI of 20% or below is considered excellent.
Monthly Debts
All monthly debt payments for of you and your co-borrower, including: minimum monthly required credit card payments, car payments, student loan payments, alimony/child support payments, any house payments (rent or mortgage) other than the new mortgage you are seeking, rental property maintenance, and other personal loans with periodic payments.
Do NOT include: credit card balances you pay off in full each month, existing house payments (rent or mortgage) that will become obsolete as a result of the new mortgage you’re seeking, or the new mortgage you’re seeking.
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