Читать книгу Home Buying Kit For Dummies - Eric Tyson - Страница 54

Because we’ve personally seen the financial consequences of people borrowing too much (yet still staying within the boundaries of what mortgage lenders allow), you won’t hear us saying in this section that lenders can tell you the amount you can afford to spend on a home. They can’t. All mortgage lenders can do is tell you their criteria for approving and denying mortgage applications and calculating the maximum that you’re eligible to borrow. (For the inside scoop on lenders and their limits, see the first section of this chapter.)

Mortgage lenders tally up your monthly housing expense, the components of which they consider to be

Mortgage payment (PI for principal and interest) + Property taxes (T for taxes) + Insurance (I for insurance) = Lender’s definition of housing expense (PITI is the common acronym)

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FIGURE 3-1: It takes many years into a mortgage to begin making real progress at repaying the amount originally borrowed. In this case, paying off half the loan balance takes nearly 22 years.

For a given property that you’re considering buying, a mortgage lender calculates the housing expense and normally requires that it not exceed a certain percentage (typically around 40 percent or so) of your monthly before-tax (gross) income. (Some lenders allow the percentage to go a bit higher.) So, for example, if your monthly gross income is $6,000, your lender will not allow your expected monthly housing expense to exceed $2,400 (if the lender is using 40 percent). When you’re self-employed and complete IRS Form 1040, Schedule C, mortgage lenders use your after-tax expenses (net) income, from the bottom line of Schedule C.

Now, if you’ve been paying attention thus far in this chapter, you should smell something terribly wrong with such a simplistic, one-number-fits-all approach. This housing-expense ratio completely ignores almost all your other financial goals, needs, and obligations. It also ignores utilities, maintenance, and remodeling expenses, which can gobble up a lot of a homeowner’s money.

About the only other financial considerations a lender takes into account (besides your income) are your other debts. Specifically, mortgage lenders examine the required monthly payments for student loans, an auto loan, credit-card bills, and other debts. In addition to the percentage of your income lenders allow for housing expenses, lenders typically allow an additional 5 percent of your monthly income to go toward other debt repayments. Thus, your monthly housing expense and monthly repayment of nonhousing debts can total up to, but generally be no more than, 45 percent.