Money Hacks

Guest post by Ryann Meade

We apply for a mortgage for various reasons. But when you do apply for a mortgage, you need to have an idea about “how much mortgage can I afford” because no one wants to lose his house to foreclosure. Basically, it depends on two factors: income and the amount of debt.

Factors determining mortgage affordability
The factors which determine “how much mortgage can I afford” are given below:
 

• Basic earning: Lenders normally lend 3 to 3.5 times your gross annual income. Your gross annual income is your basic salary plus any guaranteed bonuses. Some people earn a basic salary. While some people such as recruitment consultants, working in a marketing division, earn a low basic salary but they earn lot of money through commission that is not guaranteed. Lenders will only look at the guaranteed chunk of income. 

• Debts: Lenders also look at your regular monthly debts and obligations such as instalments loans (bank loans, auto loans, etc), real estate loans, revolving accounts, etc. Your housing expenses and long-term debts must not be more than 33 percent to 36 percent of your gross monthly income. For Federal Housing Administration (FHA) loans, this figure must not be more than 41 percent of your gross monthly income. Lenders consider monthly expenses extending more than 10 months as long-term debt.

If you analyze these two factors then you can get the answer to your question “how much mortgage can I afford”. However, there are various other factors that determine how much mortgage you can afford to borrow in reality. The mortgage calculator also helps in determining how much mortgage can you afford in reality.

Role of the mortgage calculator
There are many mortgage calculators available in the market (interest-only calculator, online-mortgage calculator, refinancing calculator, amortization calculator) that can give an idea about “how much mortgage can I afford to borrow”. The loan mortgage calculator helps you to calculate home loans and compare the cost options. You have to simply put the necessary data (total amount of loan, rate of interest and the total term of the mortgage loan) into the calculator. Then the calculator will help you to know about your monthly payment amount, length of time it will take to pay back your loan. It compares your monthly income with your upcoming monthly payments, how much of your payment will go towards repaying the principal and how much towards the interest. Thereby you will get can estimate about how much mortgage you can afford to borrow.

Banks, insurers head higher – MarketWatch

A quartet of top U.S. bank stocks rose on Wednesday after J.P. Morgan Chase & Co. reported earnings that surpassed Wall Street estimates, and the insurance sector also weighed in with gains to lift financial stocks more than 2%.

I suggest that the management at JPM horde all that cash, as the next big mortgage resets occur in 2012 (5 years after the peak of 2007, when everybody and their mother, dog, parakeet, and gerbil bought houses with no money down, poor credit, and insufficient income).

Now that many of those same people are now either unemployed or still making less money than their mortgage payment, the pressure is going to be HUGE on the housing market, banking sector, and overall economy. Let’s hope the news that the economy and employment pictures are improving, else we fall into a really nasty tailspin. Let’s also hope I’m wrong about the resets (here’s the good personal news: my mortgage from 2004 reset at a lower interest rate).