Perhaps the most common mistake made by those new to the home buying experience is opting in for a mortgage that only seems to be affordable. Unfortunately, by the time they find out that they can’t handle the payments, it’s often too late. The following includes important information that can help you determine how much you can really afford to pay each month.
The 28/36% Rule
The issue with the home buying process is that there are often various parties that are only there to help you strike a deal, and your finances are often not the priority. The responsibility will often fall on the buyer to ensure that they obtain a home loan that they can actually afford. One of the best methods to apply includes the 28/36% rule. The 28/36% rule is a rule created and accepted by various financial experts who claim that you should never spend more than 28% of your gross monthly income on your mortgage payment and no more than 36% on your debt. This rule can allow you to quickly determine if your monthly payments are feasible.
The Importance of Working With a Mortgage Broker
If this is your first time seeking a loan, the process can no doubt seem complicated. When there is so much money and responsibility on the line, taking on such a feat may not be the best decision on your end. Seeking the service of a mortgage broker allows you to have an expert on your side. Their job is to communicate with as many mortgage lenders around your area to find you the best deal.
Net Income Versus Gross Income
One of the issues regarding your mortgage lender is that they are usually going to calculate how much you qualify for using your gross income and debts. However, gross income does not take into consideration other monthly expenses such as taxes, healthcare insurance, etc. That is why it is always important to look at your net income or “take-home pay” to determine how much you can afford to realistically pay each month.
If you need help figuring out how much mortgage you can afford and live in Orange County or Riverside County, California, contact us today.