1 big mortgage risk to avoid in this insane market


The real estate market today is definitely not the most favorable for borrowers. There is a serious shortage of homes for sale and house prices have repeatedly hit new recent highs in most of the country. Many properties are also sold very quickly.

This type hot housing market can be very frustrating if you are looking for a home. And, unfortunately, sometimes this can lead to borrowers making the mistake of stretching their budget and mortgage this is more than they can afford. This is why this is a mistake.

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Make sure you know how much home you can actually afford

Unfortunately, with such high housing costs and such inaccessible homes, many borrowers may end up stretching their budgets to be able to get into the home.

Lenders will approve borrowers for a loan based on their debt to income ratio (DTI)… At the same time, the total monthly debt payments are compared with the monthly income. Usually mortgage lenders allow borrowers to go up to 38% of the debt-to-income ratio (including mortgages), but some allow them to take on much more debt. In fact, for certain types of mortgages, the borrower can get approval with a DTI of 50%.

But the approval of a large loan does not mean that it is actually available to you during the entire repayment period, especially considering your financial goals and plans for the future. If you decide to take out the largest allowable mortgage to make a competitive offer in today’s seller market, you may end up really regretting it if it turns out that the loan repayments are inconvenient for you.

Rather than letting the insane market force you to make choices that you will eventually regret, it’s better to know ahead of time. how much house can you afford

Set your own maximum mortgage limit based on the amount that you are really sure you are comfortable with paying each month. And when you decide how much mortgage you are willing to pay, consider all of your other expenses as well as financial goals such as early retirement or college fees.

Once you have set a maximum monthly mortgage payment for yourself, you can work backwards and see how much of the loan goes into your budget. BUT mortgage calculator can help you calculate your total monthly payment. This should shape your choice when buying a home.

For example, if you decide that it is simply inconvenient for you to pay more than $ 1,000 a month on a mortgage, then the maximum amount you can borrow is about $ 250,000 (assuming you are eligible for a loan). 30 year loan with a rate somewhere around 3.125%).

Once you have figured out how much mortgage you are comfortable with, you can calculate how much money you have for your down payment. Then start buying houses that you can afford with the money invested and the maximum loan amount you are willing to borrow. Stick to finding only homes that are within that price cap so that you are not tempted to increase your budget just to buy property during the seller’s market.

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