How Much Can You Afford?
Understanding how much you can afford is one of the most important steps in the home buying process. Prudential has teamed up with HomeBanc Mortgage Corporation, whose commitment to world-class customer service will ensure your questions are answered and that you are guided through the mortgage process. HomeBanc even guarantees their service. If at anytime during the loan process, their service does not meet your needs, immediately contact any HomeBanc mortgage consultant and they will make it right. And, if your experience with them still does not meet your expectations, they will gladly refund your application fee.
Depending on your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of the house, and even what type of financing you choose. You will want to explore your monthly spending and expenses, assess your likely homeownership expenses, and consider your other financial goals when defining how much mortgage expense you can afford.
Loan pre-qualification vs. pre-approval
One of the best ways to determine your budget is to have your real estate agent or HomeBanc Mortgage pre-qualify you for a loan. Pre-qualification is different from pre-approval for a loan, because it is only an estimate of what you?ll be able to afford. With HomeBanc?s fast and convenient online application you can easily be pre-qualified in about 24 hours.
On the other hand, pre-approval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a specified amount. HomeBanc?s professional mortgage consultants will meet with you and explain the pre-approval findings, walking you hand in hand through the process, ensuring that the recommended home loan options match your personal needs.
What factors are important in qualifying for a mortgage?
HomeBanc will use several criteria to determine how much money they will be able to lend. These include:
- Gross monthly income
- Credit history
- Amount of outstanding debts
- Savings ? or the amount of money you have available for a down payment and closing costs
- Choice of mortgage type and desired length to pay back the loan (i.e., 30-year fixed, 5/1 arm)
- Current interest rates
Two important ratios
HomeBanc will also use your financial information to figure out two very important ratios: the debt-to-income ratio and the housing expense ratio.
- Debt-to-income ratio ? This is the amount of debt you are paying each month (car payment, student loan, credit cards, etc) versus your gross monthly income. A rule of thumb is that this debt payment amount in total should not exceed more than 36% of your gross monthly income. Some mortgage loan programs such as FHA and Interest Only are more lenient with this percentage.
- Housing expense ratio ? This is the ratio of the mortgage payment amount per month versus your gross monthly income. The monthly payment on a mortgage should not be more than 28-33% of your gross monthly income.
Down Payments make a difference
If you can make a large down payment, HomeBanc may be able to provide more leniency with their qualifying ratios. For example, a person with a 20% down payment may be qualified with the 33% housing expense ratio, while someone with a 5% down payment is held to the stricter 28% ratio.
Other ways to improve your purchasing power
- Gifts ? If you are having trouble saving money for a down payment, HomeBanc will allow you to use gift funds for the down payment and closing costs. However, most lenders require a ?gift letter? stating the gift doesn?t have to be repaid, and will also require you to pay at least a portion of the down payment with your cash.
- Negotiating Closing Costs ? Through negotiation, some sellers may agree to pay most or all of your closing costs (for example, if you agree to meet their full asking price on the home). If you choose to try this, make sure to ask your real estate agent for advice.
- Loan Programs ? Loans may be available at reduced interest rates, or with little or no down payments. HomeBanc offers over 150 different mortgage investment options to provide the right solution for your needs. Also, many local governments have special loan programs designed to help first-time homebuyers. Check with your local housing authority or HomeBanc for more information.
- Loan Types ? Some homebuyers choose Interest Only Adjustable Rate Mortgages (ARMs) because of the low initial payment rates. Others opt for 30-year loans because they have lower monthly payments than 15-year loans. There are significant differences between loan programs, so make sure to discuss the pros and cons of your options with your agent or HomeBanc Mortgage Consultant before making a decision.