When you’re approved for a loan, you can generally be approved for up to 45% of your gross yearly income in monthly payments, provided that you have no other outstanding debt. Otherwise, you can be approved for whatever percentage would equal 45% of your yearly income when all other debts are factored in. In the case of an FHA approved loan, you may qualify for more than 50% of your gross yearly income in monthly mortgage payments, even.
For many first-time home buyers it can be tempting to get as much of a home loan as possible. Everyone wants to have the best home that they can qualify for, whether it’s for more practical purposes or purely to keep up with the Jones’s. However, just because you can carry a debt/mortgage to income ratio of 45% of your yearly income or greater doesn’t mean you should.
Before you decide to take on the largest mortgage loan you can qualify for, be sure to do a thorough assessment of your funds. Make sure that you are happy with your budget once you factor in a large mortgage and all the expenses that go with it, such as electricity, heating, and maintenance. If you find that you have plenty of financial leeway, then by all means, go for the best and biggest home you can buy. But if you don’t find this to be the case, and you can’t think of any reason why this will change in the near future, then you may have a problem if you move forward with the highest loan you qualify for.
Taking on more mortgage than you can afford could create hardship and even lead to foreclosure. Fortunately, if you become an educated consumer, then it certainly doesn’t have to be this way. Take the time to talk to your lender and explain your full financial situation today. Let your lender help determine what loan amount is right for you, and you’ll never have to worry about paying an unaffordable mortgage.
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