If you plan to finance your new Rockport Texas real estate purchase, you will need to get pre-approved for your loan before shopping around. A pre-approval lets the buyer know you have the financial means to purchase a home, and it also gives you a budget to work within. There are several factors that affect a pre-approval, which vary from person to person. So, exactly how much can you expect to get approved for?
Income and Debt Ratios
The lender will verify the income of each person applying for the mortgage. This starting point lets the bank know the maximum amount you can afford to pay each month for your total housing expenses. The lender will also factor in your other debt obligations, including loan payments and credit card balances. Although the formulas can vary from lender to lender, most banks want your total monthly debt obligations – including your mortgage expenses – to equal no more than 36% of your gross monthly income.
For example, if you and your spouse are co-applying for a mortgage and together make $100,000 per year before taxes, the lender may allow up to $3,000 per month for debt and mortgage payments. If you have a $400 car payment and a $100 minimum credit card payment, you may only be approved for up to $2,500 per month in total housing costs.
Remember that your total housing cost is more than just the repayment of your principle mortgage balance. There are several other expenses that are factored, too. Examples include:
- Private Mortgage Insurance
- Homeowners or Condo Association Dues
- Homeowners Insurance Premiums
- Real Estate Taxes
- Down Payment
Considering the maximum amount the lender will let you borrow and the money you have saved for a down payment, you will have a better idea of your price range and the amount you can afford to pay for a house. Just remember – your closing costs can total 3-6% of the purchase price of your home and are generally payable at closing. Be sure to factor that into your costs and budget when calculating your down-payment capabilities.