The most popular question we hear from customers when determining whether or not to purchase a home is "How much will my mortgage payments be?"
Greg Adams, SVP Retail Lending, discusses what all is often included in a monthly payment and what you should consider in determining what you can truly afford.
The mortgage payment of course includes the principal and interest payment that satisfies the accrued interest and a portion of your principal balance based on an amortized schedule, usually over the course of 15-30 years. Additionally, many customers choose to escrow, or add to their payment, the cost of other related items to ensure these items are paid in full and on time. The escrow portion of your payment can include the real estate taxes for the property, the hazard insurance premium, private mortgage insurance and life and/or disability insurance.
In determining how much of a payment you can afford, the standard rule is your housing payment ratio, which includes your principal and interest payment on your first mortgage as well as any subsequent mortgages along with the monthly taxes, insurance and any association dues (condominiums) should not exceed 28% of your gross monthly stable income. Your total debt ratio includes many items depending on your financial situation, such as your monthly housing payment along with your monthly auto, credit card minimum payment, student loan debt and alimony or child support payments. This total debt ratio should not exceed 36% of your gross monthly stable income. The total debt ratio may be affected by losses shown on your tax returns, for example self employment or rental losses. The borrower should prepare a budget of all of his/her monthly expenses and determine for themselves if the home is affordable based on that budget. Borrowers can also access www.mgichome.com which offers a buyers education web page that helps you when buying your first home.
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