Deciding the amount of home to buy

When deciding to buy or loan a house situated at Nashville TN Real Estate, the most important thing that you should put into consideration is the price or the amount you will be willing to spend for buying/loaning a home. Now, when deciding the amount of home you will be buying, there are also things that you need to put into consideration such as the debt-to-income ratios.

Debt-to-income ratios is the most effective method that a potential home buyer should use. This method helps determine a buyer’s maximum mortgage amount or the amount a buyer or borrower can spend when acquiring a new home through a mortgage loan. For many buyers they consider the debt-to-income ratios as guidelines.

The method is all about getting the percentage of a borrower’s monthly gross income that he will be using to pay the monthly mortgage payments. There are two calculation in this method; the front and the back ratio and they are generally written in the following format: 33/38. To understand how each calculation works, refer to the next paragraph.

Front ratio calculation

In cool springs TN Real Estate, front ratio calculation is the percentage of a borrower’s monthly gross income that he can use to pay the housing costs such  as interest taxes, home insurance and homeowners fees when he belongs to one.

Back ratio calculation

Like the front ratio calculation, back ratio also includes the monthly payment of the borrower for the mortgage. It also includes the payment for his consumer debt such s car payments for car loans, installment loans for gadgets and home appliances, but it does not include the payment for a life insurance or auto/car insurance.

In the second paragraph, I’ve mentioned on the front and the back ratio being  generally written in the 33/38 format. Do you know what that means? That means that the borrower’s housing costs consume thirty-three percent of his monthly income. When adding the consumer debt with the mortgage payments, the two should not take more than 38% of his monthly income to be able to pay his financial obligations.

But, one thing that you should remember, guidelines are just guidelines and they are actually flexible. This means that if you paid a small down payment, the guidelines will be more rigid, but if you paid a larger down payment, for you the guidelines are less rigid. Also, loan programs are having different guidelines. Some have 29/41 instead of 33/38. So when you avail to a loan program, consider studying the guidelines that they have.