Buying a house is generally one of the largest purchases any American will make. Getting into such large debt might not be a concern for some, but when things go wrong, it can be a disaster. One of the most important considerations when taking out a new mortgage is evaluating whether you can really afford the repayments.
Before applying for a home loan, you must assess your household finances and establish how much you can afford. Lenders have some complex and hard rules when it comes to assessing people's finances, so preparation is key. Brokers will compare your annual income against costs of typical homeownership, including property taxes and the required home insurance.
Typically, lenders like to see that 25 to 30 percent of an applicant's income can go towards housing costs. There are instances, though, where mortgages may be approved even if up to 40 percent of a borrower's income is going towards home expenses. Overextending the family budget may leave you vulnerable, especially when unexpected financial expenses arise, such as an unforeseen medical bill.
Lenders will, in most cases, also look at your other debts, such as your credit card repayments and auto loan balances. These will also affect how much credit an institution is willing to offer you. When considering whether to apply for a mortgage, you should have your personal finances well prepared and aim not to overreach too much. Otherwise, you might get a nasty surprise when your application is turned down, or even worse, your home loan is approved, but future circumstances mean your family cannot keep up with the monthly mortgage payments.
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