What’s my purchase power? How much can I afford? What information was used to determine the maximum loan amount?
Your mortgage professional will review the income documents to calculate the gross income from all sources. The maximum debt ratio (total debt divided by total income) is generally at 45%. In other words, if your gross income each month is $1,000, the maximum monthly debt you can carry will be $450. The maximum debt includes monthly mortgage payment, property taxes, homeowner’s property insurance, homeowners’ association dues, mortgage insurance premium if applicable in addition to all debts listed on the credit report. If there’s any loans or outstanding debts not on the credit report (such as 401K and/or child support), those will also have to be added into the monthly debts.
There should be funds set aside for closing costs. Typically, non-recurring closing costs can be between 1% and 2% of purchase price depending on how the purchase contract is written. If you would like to “buy-down” the interest rate, an origination fee will be added in addition to non-recurring closing costs. The lower the interest rate is bought down, the higher the origination fee will be.
Ready to take your first step? Contact me today at 925-216-3618 for more information.
