| There are several things you need to do to get a | | | | notable advantages. One, fixed-rate mortgage frees |
| pretty fair deal on a mortgage: improving your credit | | | | the borrower from worrying about the future increase |
| score, cleaning up most of your debt, saving for the | | | | of interest rate, which in turn, would result to higher |
| down payment, looking for a mortgage broker, | | | | mortgage payment and making the mortgage |
| shopping for a house, etc. But these are all useless | | | | suddenly unaffordable. Two, fixed-rate mortgage can |
| without knowing exactly how much loan you can | | | | be cheaper if there the interest rate suddenly goes up. |
| afford because you cannot get an approval for the | | | | And three, fixed-rate mortgage offers a predictable |
| amount you need if you simply cannot pay it back to | | | | payment plan since the monthly mortgage does not |
| your mortgage company. So if you want to own a | | | | change. |
| dream house, you need to know how much dream | | | | The adjustable rate mortgage on the other hand is |
| you can afford. But mortgage companies do not really | | | | more affordable compared to fixed-rate loan for the |
| care much about you and preference for a house as | | | | reason that it offers lower interest rate. Also, borrower |
| they care much about your ability to pay back what | | | | can easily qualify for bigger loan since the payment |
| you borrow from them. And this they have to know | | | | amount and mortgage rate is lower. However, due to |
| by reviewing your credit history, your monthly gross | | | | the varying interest rate, the mortgage may suddenly |
| income, and how much money you have for down | | | | become unaffordable the moment interest rate goes |
| payment. | | | | up. |
| Home buying tips. | | | | To know how much you can afford you need to |
| Careful planning is the secret to a successful home | | | | know 2 things: your front-end ratio and your back-end |
| buying. Do your research in advance and monitor the | | | | ratio. |
| trend of the interest rate. A correct projection of the | | | | The front end ratio. |
| future rate of interest yields to the right selection of | | | | In general, your monthly mortgage payment, including |
| house mortgage. Also, cleaning your debts will definitely | | | | homeowners insurance, real estate taxes, principal and |
| help you get a good rate since it improves your credit | | | | mortgage should not exceed to 28% of your gross |
| history, which is one of the bases of the computation | | | | monthly income. Use this formula: annual salary x 0.28 / |
| of the interest rate. It is also wise to start saving at | | | | 12 (for months). So if you earn $30,000 a year multiply |
| least a couple of hundred of dollars, several months | | | | with 0.28, divide it by 12, your front end ratio is equal to |
| before you shop for a mortgage loan. This will prepare | | | | $700. In short, you can afford a loan with a monthly |
| you to the future financial stress of paying the | | | | payment of $700. |
| mortgage off. | | | | Back-end ratio |
| What type of mortgage fits your budget? | | | | The back-end ratio is the total debt-to-income which |
| There are 2 basic types of house mortgage: | | | | should not exceed to 36%. It is your total debt including |
| fixed-rate mortgage and the adjustable rate mortgage. | | | | all your mortgage, debt obligations, child support, car |
| Each has its own characteristic and method of rate | | | | loan, credit card bills, child loans, etc. The allowable |
| computation, which is one of the deciding factors for | | | | debt-to-income ratio is annual salary x 0.36 / 12 (for |
| borrowers to prefer one type of house mortgage | | | | months). So, from your $30,000 annual income, your |
| over the other. The fixed-rate mortgage offers a | | | | allowable debt-to-income ratio is $900. Meaning, if your |
| relatively higher interest rate over the adjustable rate | | | | monthly mortgage payment is already $700, your other |
| mortgage. This is because loan has to compensate | | | | debts should not exceed to $200. |
| any losses from a possible future increase of interest | | | | Calculator. |
| rate since the mortgage payment remains the same | | | | Knowing exactly how much you can afford will require |
| regardless of the changes in the interest rate in the | | | | you to use mortgage calculator. There are free and |
| market. | | | | easy-to-use calculations online where you will get the |
| Meanwhile, fixed-rate mortgage is less affordable than | | | | exact figure you need. |
| the ARM. In spite of this, fixed-rate loan offers several | | | | |