A mortgage is a legal agreement by which a bank or an agency lends a loan to the first time home buyers for a particular period. If the borrower fails to return the loan in that time, the lenders hold the right to take the ownership or foreclose the property. When a first time home buyer meets a lender, the first thing he asks is how much mortgage do I qualify for? And this is the right way to start the loan process.
A great number of buyers have no idea that throwing all their savings into buying a house is not the right practice. Although you will end up owning a house, the expenses that come with a personal home can leave you vulnerable.
There are monthly mortgage payments, property taxes, Homeowners Association dues and Homeowners insurance. Apart from that, the electricity, gas, water bills and other household expenses are also part of these costs.
Once you have spent all the savings on buying a house, these expenses will come and haunt you. The only way to avoid such situation is consulting with a mortgage lender and asking how much mortgage will I qualify for?
A mortgage lender has plenty of experience of helping first-time buyers with buying a right home. A home that does not only not depleted their budget but fulfills their dreams as well.
Once you approach a mortgage lender and ask how much mortgage can I qualify for, he should be able to perform a verbal pre-qualification within a few minutes. However, a complete pre-qualification may take up to 5 days to more than a week.
How Much Mortgage Do I Qualify For – Starting From Down Payment:
Three main factors determine how much amount you will receive: down payment, ability to qualify for a mortgage and closing costs.
Down payment is a tiny percentage of the price when a home is bought on credit.
The down payment goes from the personal savings or the wallet from a first time home buyer. The more down payment you make, the less monthly mortgage installments you are required to pay.
In the old days, a down payment of 20 percent was considered to be the ideal amount. However, with the introduction of several private and government loan programs for first time home buyers, the ratio has gone down to just 3 percent.
Qualifying For A Mortgage:
When determining how much mortgage you qualify, the lenders often consider two basic guidelines:
- Your monthly mortgage payment of PITI (payment of principal, interest, taxes, insurance) must not exceed 25-28% of your monthly gross income.
- Your PITI plus other debt amounts should not exceed 33-38% of your monthly gross income.
Some other guidelines they may use while you go asking how much mortgage do I qualify for are:
This factor includes not only your monthly gross or secondary income but also the stability of income, education history, employment history and the potential for future earnings.
Based on these factors, the average income is calculated. This calculation plays an important part in how much mortgage can you afford based on income.
The Credit History:
Your credit history is based on the history of debt repayment, highest balance, total outstanding debt and highest monthly debt balance.
Your assets consist of cash on hand, bonds, stocks, CDs, savings and checking accounts or any liquid assets.
Property You Are Looking To Buy:
The property you are looking to buy undergoes an appraisal to determine the market value. If the estimated value is not sufficient, you can’t secure a loan.
The fees that you pay at the time of closing. The closing costs range between 2-6% of the mortgage loan.
These are some of the factors that lenders use to determine how much mortgage you can afford. Based on these factors, a lender will also determine which first-time homebuyer mortgage program suits you the most.
Here are some of the programs that we suggest when a first time home buyer asks how much mortgage do I qualify for.
Best Mortgage Programs For First Time Home Buyers:
When talking about first time home buyers mortgage programs, FHA, VA and USDA are the most notable ones.
How Much Mortgage Do I Qualify For FHA?
Federal Housing Administration backs this program. The minimum down payment required to qualify is just 3.5% with a credit score of 580. The limits on FHA mortgage vary from area to area. In the majority of the cities, it’s $271,050.00.
However, high-cost areas like Kenosha County in Wisconsin; it’s $365,700.00.
It is suggested that you ask the lender how much mortgage can I get approved for based on my area while applying for that loan.
How Much Mortgage Do I Qualify For VA Loan?
VA loan provides the option of 100 percent financing, which means zero down payments to qualify for the mortgage. However, this loan is only limited to the military veterans.
The maximum loan amount that this program offers is $424,000.00.
How Much Mortgage Will I Qualify For USDA?
The US Department of Agriculture backs this loan. Just like VA loan, USDA also provides hundred percent financing. The difference between the two is that USDA is only limited to the rural properties and there are no limits on maximum loan.
The amount of maximum loan you can qualify depends on the following factors.
- Debt to income ratio
- Credit scores
- Assets and income
- Previous rental or mortgage payment history
These are some of the guidelines; answering your question of how much mortgage do I qualify for and what are the best programs for first time home buyers. A pro tip here for you is that just keep the finances in order and do not spend more than you can afford. Getting a better mortgage plan will become more simple and straightforward that way.
Know how much mortgage you can afford through mortgage calculator.