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Buying a House? How Much Home Can You Afford?
Maybe you?ve heard the expert advice that your debt to income ratio shouldn?t be more than 36 percent of your total income. But do you truly know what that means, and how lenders will look at your financial history in order to decide whether or not to extend you a mortgage? If you need help figuring out your debt to income ratio, simply follow the guidelines below and soon you?ll know whether or not you?re in a position to apply for a mortgage loan.
Your debt to income ratio is the amount of monthly debt you pay out in contrast to how much income you have coming in. Start by figuring the easy part?your income. If you are on a structured paycheck, then it will be easy?simply calculate your monthly salary. If you work on a commission or other type of varying income, total your last six month?s earnings and divide by six.
Now you will need to figure your monthly debt. You should total your car payment, credit card payments (use the minimum amount payments for this calculation, even if you pay more), any other monthly debt?such as child support payments?along with the estimated amount of your new mortgage payment.
Now, take the total of your debt payments and divide it by your income and you will have your debt to income ratio. Most lenders will want to see no higher than a 36 percent debt to income ratio, although there are a few exceptions.
If you find that your debt to income ratio is so high that you may not be able to quality for a mortgage, you should try to pay down some of it before applying for your loan. This will not only better your chances for a mortgage loan, but it will also ensure that you quality for one with better interest rates and terms.
To view our recommended sources for home mortgage loans, visit: Recommended Mortgage Lenders Online.
Apply For Home Mortgage Loan Online With Bad Credit - Things To Consider
So, you?ve found the perfect home. You?ve already decided where to place each piece of your furniture inside the home, and in your mind, all of your family photographs are hanging alongside the stairwell. But wait?do you know that even if you believe that your credit report is spotless, it could negatively affect your chances of getting that home mortgage approval?
The credit bureaus handle hundreds of thousands of credit reports, and it?s only logical that they will make mistakes. In fact, studies show us that there are some types of errors on at least 50 percent of all credit reports.
Could an error be lurking on your report?
Here?s a simple step-by-step guide to ensure that your credit report reflects exactly what it should.
Step One: Avoid a Bad Credit Report by Requesting a Copy of It
Under the law, you are entitled to a copy of your credit report from each of the three credit reporting agencies. You should simply submit a request in writing or visit their web sites and request a copy.
Step Two: Check the Personal Information
Maybe your name is Jane Smith, but the agencies have you listed as Jayne Smith. If you don?t think that it matters, you?d better think again. If the agencies have a miss-spelling in your name, the wrong address, reversed digits on your social security number, or even wrong employer information, it could mean bad news for your report. If the person who they have you confused with makes a late payment, then it will appear on your report. What?s worse, if they file for bankruptcy or default on a car loan, it will take some time to sort out the erroneous information once it?s found its way onto your report. Avoid all of this, and report any bad information now.
Step Three: The Credit Information
It may be too late, and you may find that there are loans or other items on your report that you?ve never taken out. In addition, you may find that late payments are on your credit report when you?re sure that you made them on time. If you find such erroneous information, then you?ll need to send the credit reporting agencies a letter explaining the error, along with any proof or documents that you have that will back up your claim. They are required to investigate your complaint and report back to you with their findings.
It?s important to do all of this before you apply for a home mortgage. It will not only reduce the amount of time that it takes to get an approval, but it could positively affect the interest rate that you end up with.
To view our recommended sources for bad credit mortgage lenders, visit this page: Recommended Bad Credit Mortgage Lenders.
Choosing The Right Buy-To-Let Mortgage
Buy-to-let took off during the 1990s with the increasing availability of specialist mortgages tailored towards the sector.
For most people investing in buy-to-let schemes, mortgages are a vital component for funding the investment. We consider some important issues to help you choose your mortgage.
Do not borrow more than you can afford
It is important not to overstretch yourself and put both your capital and credit rating at risk. Most lenders will not let first-time buyers take out a mortgage without satisfying themselves that the landlord can afford the repayments on top of other commitments from their regular income.
Some lenders are more prepared to provide mortgages without proof of income and based on the strength of projected income alone, making it easy for the landlord to borrow more than they can afford and leading to potential trouble if interest rates rise or tenant trouble prevents them collecting an adequate rent to cover the mortgage.
Repayment or interest only-mortgages
Landlords have a choice between repayment mortgages, where the monthly payment is calculated to pay both the interest and the capital borrowed over an agreed term or an interest-only mortgage, where the landlord only pays the interest on the mortgage each month, and at the end of the term repays the full amount borrowed in one lump sum.
Interest-only mortgages have the benefit of lower monthly repayments, but remember provisions must be made to ensure the outstanding capital will be repaid at the end of the term.
It is possible to sell the property and use this money to repay the loan, provided the property has either grown in value or at least maintained the same value since the initial purchase.
Variable or fixed rate
Lenders will offer the option of taking out a variable or fixed rate mortgage. Variable rate mortgages follow the interest rate set by the Bank of England. When interest rates rise, the interest on your mortgage repayments will rise. When interest rates fall, the interest on your mortgage repayments fall.
Tracker mortgages are a variant of variable rate mortgages and are usually set in relation to well known market standards.
Alternatively the mortgage lender may offer a fixed rate deal, where the interest rate is literally fixed at an agreed amount for a certain period of time. This type of deal provides a greater level of stability to the landlord, but can be more expensive and less flexible than a variable mortgage.
It is important to remember that buy-to-let is a medium to long-term investment. Try not to be taken in by mortgage products that offer low start-up costs, but actually end up being more expensive over the longer term.
Read the small print
Buy-to-let mortgages are far more complicated than regular home buyer mortgages. It is important to check that your lender does not have restrictions on certain types of let or periods of occupancy.
Restrictions could exist for:
-- Flats above shops or offices
-- Blocks of flats
-- Student accommodation
-- Corporate lets
-- Local authority / housing association lets
Seek further advice
Before choosing a mortgage we would always recommend consulting with your financial advisor and conducting further research.
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