The debt-to-income, or back-end, ratio, analyzes how much of your gross income must go toward debt payments, including your mortgage, credit cards, car loans student loans, medical expenses, child support, alimony and other obligations.
Filters enable you to change the loan amount, duration, or loan type. Buying a home can be expensive. If you live in large metropolitan areas like New York or Los Angeles, you can expect to pay even more. However, understanding whether you can afford to buy a home depends on much more than just the selling price. Unless you've spent the last several years socking away everything you've earned, or you've come into a large inheritance or won some money, chances are good that you'll need to get a loan to pay for your home.
Bloomberg News reported that the current interest rate for year fixed mortgage, as of Nov. Of course, interest rates can fluctuate based on market conditions, as well as your own personal financial information, such as your credit score, debt-to-income ratio, and the size of your down payment.
When mortgage lenders evaluate your ability to afford a loan, they consider all the factors in the loan, such as the interest rate, private mortgage insurance and homeowner's insurance. They also consider your own financial profile, including how the monthly mortgage payment will add to your overall debt and how much income you are expected to make while you are paying for the home. The housing expense, or front-end, ratio is determined by the amount of your gross income used to pay your monthly mortgage payment.
Most lenders do not want your monthly mortgage payment to exceed 28 percent of your gross monthly income. The monthly mortgage payment includes principle, interest, property taxes, homeowner's insurance and any other fees that must be included. These costs are commonly referred to as PITI, which is derived from: To determine how much you can afford for your monthly mortgage payment, just multiply your annual salary by 0.
This will give you the monthly payment that you can afford. Some loans place more emphasis on the back-end ratio than the front-end ratio.
In the next section we will display a table of widely used loan programs, along with the limits associated with each. The debt-to-income, or back-end, ratio, analyzes how much of your gross income must go toward debt payments, including your mortgage, credit cards, car loans student loans, medical expenses, child support, alimony and other obligations.
Most lenders do not want your total debts, including your mortgage, to be more than 36 percent of your gross monthly income. Determining your monthly mortgage payment based on your other debts is a bit more complicated. Multiply your annual salary by 0. This is the maximum amount you can pay toward debts each month. Subtract your other debts — including your car payment, your student loan payment and other debt payments — from this amount to determine the maximum amount you can spend on your monthly mortgage payment.
Once you have the two numbers and a sense of the interest rate you may qualify for, you can use a mortgage calculator to determine the cost of the home that you can afford. The above calculator gives you all the answers you need in one stop — determining your front- and back-end ratios and compares it to the interest rate on the loan and the length of the loan. You can also enter information about the annual taxes and insurance on the home.
You'll get a clear picture of just how much home you can afford in moments, with the results e-mailed to you in a plain-English and easy-to-understand format. In a home loan, the property is considered collateral that can be revoked if loan is not repaid according to the terms of the mortgage or deed of trust.
Commitment — A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home. Construction Loan — A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
Conventional Mortgage — A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. Conversion — The right of a borrower to convert an adjustable or balloon loan into a fixed loan. The Conversion Option column on Moving. The possible options are as follows…. Credit Loan — A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral.
Credit-Loss Ratio — The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation. Credit-Related Expenses — The sum of foreclosed property expenses plus the provision for losses. Credit-Related Losses — The sum of foreclosed property expenses plus charge-offs. Credit Report — A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.
Deed — A legal document which affects the transfer of ownership of real estate from the seller to the buyer. Deed of Trust — Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside.
Delinquency — Late- or non-payments of principal, interest, taxes, or insurance. Deposit — A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. Depreciation — In real estate and mortgage terms, the decline in the property value. Discount — Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market. Down Payment — Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.
Earnest Money Deposit — A deposit made by a potential home buyer to show that they are serious about purchasing the property. Esement — Giving other persons, other than the owner, access to a property. Eminent Domain — The government right to take private property for public use depended on the payment of its fair market value. Encumbrance — Any lien against a property or any restriction it its use, such as an easement; a right or interest in a property held by one who is not the legal owner.
Equity — The difference between the current market value of a property and the principal balance of all outstanding loans. Escalator Clause — A clause in a loan providing for increases in payments or interest based on pre-determined schedules or on a specific economic index, such as the consumer price index. For example, an earnest money deposit is put into escrow until the transaction is closed.
Only then can the seller receive the deposit. Escrow Account impound account — An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.
Escrow Analysis — An analysis performed by a lender each year to escrow accountholders to ensure that the correct amount of money is being collected to cover anticipated payments. Escrow Fee — These costs cover the preparation and transmission of all home purchased-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home.
Not all states require funds to be put into escrow accounts for closing. Estate — The ownership interest an individual holds in real property.
This is also the sum total of all the real property and personal property owned by an individual at time of death. Eviction — The legal removal of real property occupants for unlawful actions carried out by those occupants. Fair Credit Reporting Act — A law that protects consumer that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.
The program usually decreases the total amount of cash needed to purchase a home. Department of Housing and Urban Development HUD , it insures loans made by approved lenders to qualified borrowers, in accordance with its regulations.
Fees — Up-front costs associated with a loan. Fee Simple — The best title that one can obtain; unqualified and conveys the highest bundle of rights. Finance Charge — The total dollar amount your loan will cost you.
Appraisal, credit report and title search fees are not included in the finance charge calculation. First Mortgage — A mortgage that has priority over other mortgages. Fixed-Rate Mortgage — A mortgage where the interest rate does not change for the life of the loan. Float — Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float.
Floating is essentially choosing not to lock the interest rate. Request information from your lender regarding lock procedures. Forbearance — The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent. A k applies to private corporations, while a b applies to non-profit organizations. Loans against these plans are an acceptable source of down payment for most types of other loans. Good Faith Estimate — An estimate of charges which a borrower is likely to incur in connection with a loan closing.
Government National Mortgage Association Ginny Mae — Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae. Grace Period — A time allowed, usually 15 days, for making late payments without a penalty. Gross Monthly Income — The total amount the borrower earns per month, not counting any taxes or expenses.
Often used in calculations to determine whether a borrower qualifies for a particular loan. Hazard Insurance — A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes.
This mortgage provides that instead of making payments to a lender, the lender makes payments to the individual. Older homeowners are able to convert home equity into cash this way, in the form of monthly payments. Such a loan does not have to be repaid until the borrower no longer occupies the property. Home Inspection — A thorough assessment by a professional regarding the structural and mechanical condition of a property.
Housing Ratio — The ratio of the monthly housing payment to total gross monthly income. Hybrid Financing — The joining together of two forms of finance, such as combining a convertible loan with a participation loan, under which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property. Index — A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments such as one- three-, and five-year U.
Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans , which is then used to adjust the interest rate on an adjustable mortgage up or down.
Interest — Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property. Interest Only — A term loan arrangement calling for payments of interest only, not to include any amount for principal. Interest Rate Swap — A transaction between two parties, in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time. Intermediate-Term Mortgage — A mortgage loan with a stated maturity at the time of purchase that it is equal to or less than 20 years.
Judicial Foreclosure — A court procedure used by lenders to secure clear title to a property under a defaulted real estate loan. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Last Updated — The Last Update column on a quotes results table tells you when the information was last provided by the lender to our site. We always place new listings at the top of each table so that you, the borrower, may have immediate access to the most timely information.
Times provided are all Eastern Standard Time. Leasehold Estate — An estate for a fixed length of time, established when a landlord gives up possession of real estate to a tenant, giving the tenant an equitable interest in the property, as defined by lease terms. Monthly payments consists not only of rent, but an overage that can be applied towards a down payment on an already established amount. Lender — The bank, mortgage company, or mortgage broker offering the loan.
Liability Insurance — Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party. Lien — A legal claim by one party against the property of another as security for a debt.
Must be paid off when property is sold. A mortgage or a first trust deed is a lien. Life of Loan Cap — The maximum interest rate that can be charged during the life of the loan.
Also called Lifetime Cap. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 7. Loan — The principal, or amount of total borrowed money, that is repaid with interest.
Loan Amount — The amount of money that you intend on borrowing from a financial institution for the purchase of your home. Subtracting the down payment from the purchase price of the home will provide you with the loan amount. Loan Origination — What the process of obtaining new loans is called. Loan Servicing — A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
Loan-To-Value Ratio — The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal. Lock noun — The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken.
Lock verb — The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Lock-in Clause — Clause in a loan agreement that states that the borrower cannot repay a loan prior to a specified date.
Margin — The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate. Merged Credit Report — A credit report that reports data from two or more major credit repositories.
Minimum Credit — This field on the table refers to the minimum credit rating a borrower must have in order to qualify for the listed loan. Modification — Any change to the original terms of a mortgage. Monthly Housing Expense — Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis.
Used with gross income to determine affordability. Mortgage — A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans. Mortgage Banker — A financial intermediary that originates or funds loans, collects payments, inspects the property, and forecloses if necessary. The main difference between a mortgage banker and a loan officer is a banker funds their own loans and sell them on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginny Mae.
Mortgage Broker — A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee. Mortgage Constant — The factor used for rapid computation of the annual payment needed to amortize a loan.
Mortgage Insurance — Insurance that covers the lender against losses incurred as a result of a default on a home loan.
This is usually required on all loans that have a loan-to-value higher than eighty percent. The lenders then pay the mortgage insurance themselves. In addition, FHA loans and some first-time homebuyer programs require mortgage insurance regardless of the loan-to-value. Multidwelling Units — Properties that provide separate housing units for more than one family, although only a single mortgage is secured.
Negative Amortization — Essentially occurs when a borrower makes a minimum payment that may not cover the interest that is due. Loan balance then increases as a result. Net Effective Income — Gross income less federal income tax.
No Cash-out Refinance — A refinance transaction that is not intended to put cash in the hand of the borrower, but instead calculates a new balance to cover the balance due on a current loan and any costs with obtaining a new mortgage. No-Cost Loan — A no-cost loan can either be: The interest rate on this type of loan is higher. Note — A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate — The stated interest rate on a mortgage note. Origination Fee — The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned. Owner Financing — A property purchase that is partly or wholly financed by the seller. Partial Entitlement — Under VA loans, the amount of guarantee still available to an eligible veteran who has used his previous entitlement. During times of economic hardship, a borrower can make this request of the loan servicing collection department.
Participation Financing — A loan in which more than one mortgagee or more than one mortgagor harbors an interest.