An affordable mortgage payment should enable a homebuyer to pay his obligations as agreed. Many factors must be considered to accurately calculate an affordable mortgage payment. Generally, conforming lending guidelines consider 28 per cent of your gross monthly income as a maximum level of affordability. Most lenders perform a secondary calculation that measures your total debt, to determine if you can afford a mortgage loan in conjunction with your existing debt. You can perform manual calculations to determine an affordable mortgage payment or use an online calculator to simplify the process.
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Gather the total gross annual income for applicants who will be listed on the mortgage loan. Combine the wages reflected on each W-2 form, as well as yearly Social Security income and investment income to obtain the total gross income.
Divide the total annual income by 12 to obtain the gross monthly income. For instance, if you and your spouse have combined earnings that equal £46,800 per year, your monthly gross income would amount to £3,900 ($72,000 divided by 12 equals £3,900).
Multiply the gross monthly income by 28 per cent to calculate an affordable mortgage payment. Using the previous example, an affordable mortgage payment would equal £1,092 ($6,000 times 28 per cent equals £1,092). Reduce the result by an additional 10 per cent for your estimated property taxes and homeowners insurance premium. You would subtract £109 from £1,092 using the above example, to realise an affordable mortgage payment that equals £982 per month for principal and interest ($1,680 minus 10 per cent or £109 equals £982). The actual percentage or amount that should be estimated for taxes and homeowners insurance varies from state to state. Contact your local tax assessor's office or a real estate agent to gain more accurate costs. If you make a down payment that is less than 20 per cent, you might also need to include the cost of private mortgage insurance, which could average from £32 to £65 per month at the time of publication.
Perform a calculation to determine an affordable combined debt-to-income ratio. Multiply your gross monthly income times 36 per cent. Using the result, subtract the calculated affordable mortgage payment to obtain an acceptable amount of consumer debt. For example, if your combined gross monthly income equals £3,900 per month, your monthly consumer debt should not exceed £312 per month ($6,000 per month times 36 per cent equals £1,404, minus the £1,092 estimated mortgage payment equals £312).
Obtain a consumer credit report for each applicant who will be listed on the mortgage loan. Combine the monthly payments that appear for each of your creditors. Add the total monthly creditor payments to the calculated affordable mortgage payment and tally your estimated monthly debt. For instance, if you and your spouse have combined creditor payments that equal £520 per month, you will need to pay off some of your consumer debt or obtain a lower mortgage payment to meet affordability guidelines.
Use a mortgage calculator to input your financial details, an approximate interest rate and your down payment amount to obtain an affordable home loan payment (see Resources).
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