North Texas Real Estate Blog

You’re a buyer, and you’re interested in homes in Southlake TX, Grapevine TX, or Keller TX because of their central location and great schools. You’ve reviewed your credit score and are ready to begin searching for your home. Before you even look at any homes, buyers should first consult a mortgage company to make sure what they can afford to buy. You look at that beautiful Southlake estate or charming home in Grapevine and you’re heart is set on a particular home. Although most people have a general idea of what they can afford, understanding the process of how a lender determines what you can qualify for may be less than you believe you can afford.

All lenders analyze two different ratios when reviewing a loan application. The first is called the front ratio and it is the principal, interest, taxes and insurance on a property. For a conventional loan, the maximum limit is approximately 28% of the borrower’s gross monthly income. FHA loans have a slightly higher front end ratio of about 31%. The other ratio, the back ratio, is the borrower’s other monthly obligations, like child support, car payments, credit card payments, or any other loan payments are added to the principal, interest, taxes and insurance. On a conventional loan, the back ratio is limited to about 36% of the borrower’s gross income. FHA has a higher back ratio of about 43%. FHA has a minimum 3.5% down payment, which will require the borrower to pay for mortgage insurance. Conventional loans require at least 5% down payment, and require mortgage insurance if the down payment is less than 20% of the loan.

Even if you have sufficient income to qualify for a home, you’re debts and monthly obligations may prevent you from doing so. For those people that are paying off credit card debt, it is best to payoff small balances first, then, work on paying off larger balances. Make sure you make your payments before their due date. Late payments will affect your credit score, which will also limit the type and amount of loan you will qualify for. Keeping your debts to a minimum will help buyers to maximize their buying potential. Lower credit scores may require a higher down payment than those with credit scores over 700.

Even though a lender will tell you that you are financially capable of qualifying for a loan, please make sure to consider that after you move into your home, you may need to buy things like appliances, furniture, or maybe even a new car. You may be able to barely qualify for a particular amount with no debts, but if you anticipate future monthly payments in addition to your new home, be sure to consider these when you make your decision on which home to buy. Also, take into consideration that property taxes may raise in the future, especially if you are purchasing a new home. The first year in a new home, your property taxes are based on unimproved land. The next year, you will have to pay the taxes for improved property, which may result in an increase in your monthly payment. Be sure to consult your Realtor about the possibility of this occurring.

Home ownership is a great experience. For more information about buying or selling a home, please contact Dave or Betty Warden at 817-706-3291.