Categories
Home Buying Tips Home Insights

How Much of My Income Should I Spend on My Mortgage Payment?

Understanding your housing expenses

When a lender reviews your loan application, their main job is to verify that you are a low-risk candidate who will be able to cover your monthly housing expenses for the full life of the loan. To do this, they will first calculate your monthly PITI:

  • Principal of the loan
  • Interest on the loan
  • Taxes (estimated from annual payment)
  • Insurance (estimated from annual payment)

While every lender is different, and every loan application is reviewed independently, the general rule of thumb is that your monthly PITI should be between 28-35 percent of your monthly income before taxes. This number is known as your front-end debt-to-income ratio.

 

Understanding your debt obligations

Of course, you may have other long-term loans or debt obligations that you pay each month. Lenders will also take these debts into consideration as they review your loan application.

The easiest way to think of a debt obligation is to consider who you are paying back. Common debt obligations include:

  • Student loans
  • Car payments
  • Child support payments
  • Credit card minimum payments (if you have a long-term balance you are paying off)
  • Medical or hospital bills

To calculate your back-end debt-to-income ratio, the lender will add up your monthly debt obligations, including your hypothetical monthly PITI. They will divide that by your total monthly income before taxes.

Typically, lenders are looking for a back-end debt-to-income ratio of 35-45 percent. But again, every lender varies and your personal financial history and income history will also be factored in.

 

What about other expenses?

You have daily, weekly and monthly expenses that won’t necessarily be taken into account by a lender — but that doesn’t mean you shouldn’t think about them as you begin the path to home ownership.

Before you apply for a mortgage, take stock of your monthly expenses, including:

  • Groceries
  • Gas or transportation costs
  • Restaurants, coffee shops and gas station pit-stops
  • Mobile phone plans, cable television plans and streaming services
  • Shopping and gifts

It’s likely that you could tighten up one or two of your spending categories without too much effort. Your lender may not notice, but you’ll find it easier to afford your monthly PITI and debt obligations when you minimize your other expenses.

 

How can I calculate my buying power?

If you’re looking for an easy-to-use tool that takes into account your front-end and back-end debt-to-income ratios, check out these great calculators from Prosperity Home Mortgage, LLC.

 

Categories
Home Buying Tips Home Insights

How Much of My Income Should I Spend on My Mortgage Payment?

Understanding your housing expenses

When a lender reviews your loan application, their main job is to verify that you are a low-risk candidate who will be able to cover your monthly housing expenses for the full life of the loan. To do this, they will first calculate your monthly PITI:

  • Principal of the loan
  • Interest on the loan
  • Taxes (estimated from annual payment)
  • Insurance (estimated from annual payment)

While every lender is different, and every loan application is reviewed independently, the general rule of thumb is that your monthly PITI should be between 28-35 percent of your monthly income before taxes. This number is known as your front-end debt-to-income ratio.

 

Understanding your debt obligations

Of course, you may have other long-term loans or debt obligations that you pay each month. Lenders will also take these debts into consideration as they review your loan application.

The easiest way to think of a debt obligation is to consider who you are paying back. Common debt obligations include:

  • Student loans
  • Car payments
  • Child support payments
  • Credit card minimum payments (if you have a long-term balance you are paying off)
  • Medical or hospital bills

To calculate your back-end debt-to-income ratio, the lender will add up your monthly debt obligations, including your hypothetical monthly PITI. They will divide that by your total monthly income before taxes.

Typically, lenders are looking for a back-end debt-to-income ratio of 35-45 percent. But again, every lender varies and your personal financial history and income history will also be factored in.

 

What about other expenses?

You have daily, weekly and monthly expenses that won’t necessarily be taken into account by a lender — but that doesn’t mean you shouldn’t think about them as you begin the path to home ownership.

Before you apply for a mortgage, take stock of your monthly expenses, including:

  • Groceries
  • Gas or transportation costs
  • Restaurants, coffee shops and gas station pit-stops
  • Mobile phone plans, cable television plans and streaming services
  • Shopping and gifts

It’s likely that you could tighten up one or two of your spending categories without too much effort. Your lender may not notice, but you’ll find it easier to afford your monthly PITI and debt obligations when you minimize your other expenses.

 

How can I calculate my buying power?

If you’re looking for an easy-to-use tool that takes into account your front-end and back-end debt-to-income ratios, check out these great calculators from Home Services Lending.

Categories
Home Buying Tips Home Insights

Tips to Pass Your Home Inspection When Selling

The vast majority of Central Kentucky homebuyers will want to have a thorough home inspection performed as soon as their offer is accepted by the seller. Here are five tips on how to ensure that when selling, you pass your home inspection with the fewest issues possible.

 

1. Unfettered Access

First tip to pass your home inspection, provide unfettered access to your electric panels, heating and cooling systems and your attic. The inspector will need to assess all of these areas, so it’s best to let them get in easily. Remember also to clean the space below your sinks so the inspector can easily assess your pipes.


2. Appliance Check

Second, be sure to empty all your appliances to facilitate the inspection (except your refrigerator, of course).  That means your washer, dryer, dishwasher and stove should all be fully empty and ready to test.


3. Documentation

Next – if possible — provide full documentation of your appliances, systems and any work you’ve had done on them. For example, “if you’ve had an engineer inspect a crack in your foundation and there’s nothing wrong with your structure, display that report so the home inspector doesn’t have to be concerned about the crack,” says a local inspection company.

You can even attempt to provide the manuals for appliances by using online resources like GE’s Appliance Manual online center: http://www.geappliances.com/ge/service-and-support/literature.htm


4. Light The Way

One incredibly simple tip – replace ALL light bulbs so the inspector won’t have to worry about whether a burnt out bulb is really an issue with your wiring. 


5. Get Outta There

Last, get out of there!  Think of the inspection as another home showing – you need to be out of sight and out of mind so the inspector can speak freely with the buyers and their agent. And if at all possible, take your pets with you or arrange for them to be visiting a friend or relative during the inspection time.


 

These tips are a great starting point to helping pass your home inspection. Remember, your real estate agent is your best resource throughout the entire listing process. They are there to guide you through each part of the transaction and answer any questions that you have. Rector Hayden REALTORS® are trained to handle the different situations that occur in our market and are dedicated to the success of your sale.


 

How Sellers Can Pass The Appriasal

Maybe you’d also find this article helpful? How Sellers Can Pass Their Appraisal

Categories
Home Buying Tips Home Insights Newsletter Featurettes

5 Tips to Compete in Multiple Offers!

Over the past few months, our local market here in Central Kentucky has seen its lowest inventory in over a decade. With a shortage of homes for sale in Lexington and Central Kentucky, buyers may find themselves in multiple offers in this market.

Common wisdom says that the highest offer will win every time, but the reality of multiple offers is a bit more complex. Here are insights you can use if you enter multiple offers when buying a home this year.

 

1. Assess the market

Your Rector Hayden Agent will help you identify if multiple offers are common in the homes, neighborhoods and price point you want to buy. If you’re hoping to purchase in the higher-demand areas and subdivisions in Lexington and Central Kentucky, it’s likely that you’ll need a multiple offers plan before you enter the market. Remember, real estate is all about location and local quality of life, so hiring a specialist who can advise you properly will be critical to making the right bid.

 

2. Go BIG to Get Home

While the highest bid isn’t the only consideration sellers make, you’re unlikely to get the sale if your offer is at the bottom of the heap. When making an initial offer on a home in high demand, your Rector Hayden Agent can help you make an attractive offer. Together, you can strategize on the benefits of making your best offer out of the gate — meaning you would walk away if the home still hit multiple offers — or offering below your “ceiling” in order to have leverage once other bids come in.

 

3. Nix the Contingencies

In a market where buyers have the advantage, contingencies are common. Buyers may make an offer that is contingent on the sale of their own home or on a passed home inspection. When sellers have multiple offers to choose from, they are unlikely to look at offers that include such contingencies. Provided the home is free of major issues, consider making a “clean offer.” This could be one way to appeal to a seller outside of having the highest offer.

 

4. Put Cash Down

Another way to impress sellers is to prove you can pay a substantial amount of money at closing. If you can afford a down payment of roughly 10 to 20 percent, the seller and their agent may feel more comfortable with you than another buyer who has less to offer up front. We’ll work with your mortgage loan officer to ensure you’re making a strong — but safe and comfortable — offer.

 

5. Offer Better Timing

One last way to stand out in multiple offers is to offer the seller a beneficial path to closing. If we know the homeowner is hoping to sell the home immediately, it would benefit you to offer a closing with a month or even a few weeks. If the seller is waiting on a new construction home that won’t be ready for 60 – 90 days, offer a delayed closing. When multiple bids are close, these types of generosities can make all the difference.

 

Are you ready?

Ready to enter this hot market? We can discuss the frequency of multiple offers in your selected area, then determine your strategy for standing out no matter what your budget. Reach out to your Rector Hayden Agent today to get started!