Did you ever dream of buying your own house?
Of course, everyone does! But the question is, can you afford it? For an average income earner, buying an affordable house is a $64 question. How can you save money out of a salary which has been allotted to fixed expenses like phone bills, electric bills, credit cards, health cards, taxes, etc.
You need not despair because there is a way to calculate your ability to buy your dream house.
We will use the lenders guidelines in determining your maximum mortgage amount. They call it debt-to-income ratios, which is the percentage of your monthly gross income (before taxes) that is used to pay your debts per month. There are two calculations, one is the “front” ratio and the other is the “back” ratio. Accordingly, “the front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including other charges…” the back ratio is similar except that it includes your monthly consumer debt. The format is 33/38 wherein a borrower’s housing costs use 33% of their monthly income, then add their monthly consumer debt to the housing costs which should take at least 38% of their monthly income to meet those obligations.
First, calculate your income per month. The shortest way to determine your monthly income is by getting your W2 form for the last 2 years. Add your salaries together then divide by 24. Simple.
The method may vary depending on your occupation. If you are paid hourly, multiply your rate by 40, multiply total by 52, then divide by 12.
Second, start working backward. Multiply your monthly income by the back ratio for your loan which is 38%. The product will tell you the maximum the lender wants you to spend on your housing and consumer debt per month.
Third, guess how much you qualify for. Assuming you can guess the price you might qualify for, you may now calculate an estimate of your yearly property taxes and insurance cost. Afterwards, you calculate the equivalent per month and deduct it from your maximum housing cost on a monthly basis.
Other types of housing units might entail additional expenses such as association dues and the like.
Fourth and last, pray hard that lenders will approve. The last step needs you to pray hard and ask the help of the lenders to approve the amount you need for your dream house. For your information, lenders are very well-versed with regards to “stretching” a client to the max if they need it. They are more than willing to help you achieve your dream house.
Now, if luck smiled upon you and you get the amount that you need for your dream house, do not hesitate to grab the opportunity. All you have to do is go for it, work hard for it, and always remember that nothing is impossible in this world if you put heart and mind into achieving your dream.
Ma. Roma Agsalud