A simple way to calculate your real estate purchasing power

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It’s a good idea to figure out how much of a home you can buy before you get in the car and go into loan and shopping sprees. In addition to discovering the extent of your purchasing power; you will learn enough about the qualifying process to successfully negotiate the best loan deal with lenders. All you need to accomplish this task is a little bit of information about your income, debt, and credit.

A large percentage of lenders sell their loans in the secondary market, where they are packaged in mortgage-backed securities and sold to investors – such as pension funds, insurance companies and hedge funds. Investors and mortgage insurers set the standards that buyers must meet in order for their bad credit loans to be eligible for purchase. One of these standards is the debt-to-income ratio, which reveals the percentage of a borrower’s gross income that is used to service the debt.

Investors prefer to buy loans that follow the 28/36 rule. The guideline suggests that a borrower’s house payment should not exceed 28% of their gross monthly income (the initial ratio), and that their home payment and other payments combined should not exceed 36% of their monthly income. gross monthly income (the report). In fact, the guidelines are much more generous.

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In our part of the country, lenders regularly qualify borrowers with ratios of around 30/45 and more when a buyer is particularly qualified. With the exception of the New Mexico Mortgage Finance Authority’s first-time buyer programs, where interest rates are the same for all applicants, debt ratios play an important role in the interest rates offered to borrowers. Again, with the exception of single rate MFA programs, credit scores also have a huge impact on mortgage interest rates.

So let’s put this knowledge to work. Let’s say a buyer wants to buy a house using the minimum down payment. For veterans and active duty warriors, the deposit is zero. For everyone else, the lowest down payments are usually 3.0%, 3.5% and 5.0%. Regardless of the amount of the down payment (plus closing costs), our borrower finances roughly 100% of the purchase price. Let’s also say that the buyer’s annual income is what the census bureau reports as the median of $ 40,924, or $ 3,410 per month, for our region. https://www.census.gov/quickfacts/lascrucescitynewmexico. The median is where half does more and half does less.

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The next step is to calculate the eligible ratios of our borrowers. We know he earns $ 3,410 a month. If her initial ratio is 30%, her house payment should not exceed $ 1,023 per month (30% of $ 3,410). If his back-end ratio is 45%, the house payment and other payments combined should not exceed $ 1,535. Theoretically, if he had no other payments, he could put the difference of $ 512 on his Lambo ticket and not be disqualified due to excessive debt.

The next step is to assess our buyer’s credit and reserves. Reserves are the amount of money the borrower left behind after the purchase. For new buyers who get any of the MFA products, a credit score of 620 is all you need. For other conventional and government loan products, the higher the score, the lower the rate. So how much do credit scores affect the cost of money? In a nutshell, basically.

According to the myFico loan cost calculator available to consumers on http://www.myfico.com/credit-education/calculators/loan-savings-calculator/, the monthly payment of principal and interest on our borrower’s 30-year fixed rate mortgage of $ 127,875 varies from a minimum of $ 574 to a maximum of $ 693 for the principal and interest portion of the payment. monthly.

The final step is to convert the maximum monthly payment of $ 1,021 into the maximum house price. Typically, borrowers who use minimum down payment financing pay around $ 8.00 per month for every $ 1,000 of the sale price. The amount includes principal, interest, taxes, insurance and mortgage insurance. The maximum sale price reveal is achieved by dividing our guy’s maximum monthly payment of $ 1,021 by the monthly payment of $ 8.00 per mile. The dividend is the maximum number of thousands of $ 8.00 each that the monthly payment of $ 1,021 will support. In the case of our buyer, the number of thousands is 127,626, which translates to a purchase price of $ 127,626.

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Borrowers who have high credit scores and decent reserves are usually given higher debt-to-income ratios and offered lower interest rates. The same goes for borrowers who have a history of paying mortgages or rents above normal. The allowable ratios for borrowers who have low credit scores and very few reserves will be less generous.

Now that our borrower has determined how much home he can buy, it’s time for him to start buying loans. Keep in mind that not all shoe stores offer the same shoe products, and not all lenders offer the same loan products. And, as with shoe stores, even if two lenders offer the same product, they may not offer the same price. Once our borrower has requested and received approval to buy up to a particular price, it is time for them to start shopping for a home.

Meet at the fence.

Gary Sandler is a full time real estate agent and the president of Gary Sandler Inc., real estate agents in Las Cruces. He loves to answer questions and can be reached at (575) 642-2292 or [email protected].

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