Mortgage lenders use a number of ratios for determining the amount you can borrow for your mortgage. It is important to understand these criteria and have a basic idea regarding the maximum amount of loan you can apply for based on your financial capability.
If you’re still at a loss on how this works, many mortgage companies in St. George can give you advice and share information like the following:
The Front-End Ratio
This is your annual gross income’s predetermined monthly percentage dedicated to paying off monthly mortgage payments. Payments essentially are composed of your PITI or principal, interest, taxes, and insurance, and in general must not go above 28% of your gross earnings. There are also mortgage lenders who allow borrowers with PITI of 40% max to get a mortgage.
The Back-End Ratio
This is a percentage of your gross income for paying off outstanding debts, which is also commonly referred to as your debt-to-income or DTI ratio. Debts can include payments on credit card and cars, child support, and other mortgage payments. Lenders suggest that your DTI ratio must not go above 36% of your gross salary.
Your maximum allowable debt each month may be estimated by multiplying your gross salary by 0.36 and then dividing the number by 12. While it is fairly hard for to stay below 36% in locations where prices of real estate are higher, there are lenders who can work with a DTI ratio up to 45%.
The Percentage of Down Payment
Lending institutions may actually allow you to buy a house with a considerably more affordable down payment. Paying off a minimum of 20% of the purchase price, however, can reduce the required insurance. Those who have the budget to afford larger down payments can buy houses with higher purchase prices, and more than 20% may be able to aid borrowers in foregoing insurance. The down payment, as well as front and back-end ratios has a direct impact on your monthly mortgage payments.
Now you have some basic idea on how lenders determine your loan amount. Seek help from a competent and professional mortgage company to know more information on types of loans available to you.