New Home Mortgage - How to Determine What You Can Actually Afford

By Julian Lim

It is unfortunate that many people applying for a new home mortgage see the loan only in terms of whether the payment on the home is less than the amount of disposable income for housing earmarked in the family budget. In truth, there are many other significant factors that should be considered before determining if owning a new home is the right answer. Further, the size and location of the home are factors that impact the price. Considering such factors will help you make the proper decision about the amount of house that is appropriate for your family situation.

Income

The income level in your household used to be the determining factor of the amount of money you could borrow on a new home mortgage. Because the interest rate was fixed at a certain percentage, the lender had to be certain that the income was sufficient and likely to remain so during the life of the loan. Some assumptions about the income included that it was likely to increase over time, especially in a young borrower. The amount of the loan was often tied to the annual income, such as the price of the house could not be more than 2.5 times the household annual income. Today, this factor is given less importance than the amount and kind of credit history or credit score that you have attained.

Debt

Determining the amount of house you can afford for your new home mortgage should take into consideration two different kinds of debt. The first is that debt you already owe. If you have numerous credit cards some or most of them with available balances, you can more than likely be approved for a home loan that is larger than what you can honestly afford. Since your FICO score is based on credit rather than on income, this can be a very seductive danger. You will end up with a home with large payments and too many credit cards. The second type of debt is that added when you achieve the mortgage. Depending upon the type of mortgage, you may be totally at the mercy of rapidly increasing mortgage payments that are not covered by your income.

Stability

The stability needed to obtain the best size of house for you is related both to your stability as evidenced by employment history, credit history and other more intangible factors. In addition, when looking at a new home mortgage, you will want to consider the stability of the community in which you live. Is it a one-employer city or is the economy strong and vibrant?

Housing Market

Determining how much house you can afford on a new home mortgage depends on the general housing market in your community or neighborhood. If the housing market is strong and vibrant in the area, you can probably allow for a somewhat larger mortgage on a new home than otherwise. This statement assumes that you plan to live in the area for a period of at least 3 years.

Helping you with the financial details of your New Home Mortgage loan is what the web site located at http://www.homemortgageloan-refinance.com/ is all about.
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