Categories: Rev. Dr. Charles Butler,
A common mistake made by many first-time prospective home buyers is taking out a larger mortgage amount than they can afford. This is an easy mistake to make because the lenders are basing your pre-approval on your gross monthly income. However, you live on your net monthly income, which is usually only about 62% of the gross amount. This additional amount can make a significant difference in having a comfortable mortgage payment or struggling to pay your mortgage and meet other monthly obligations.
Here are some tips to help avoid making costly mistakes: (1) Do not borrow more than you can comfortably pay. You want a monthly mortgage payment that you can manage even when facing financial hardship. (2) Shop around before deciding on a mortgage product. Not every lender offers the same mortgage products, and their rates will vary. Comparison shopping can assist you in identifying the best deal. (3) Use your resources. Work closely with your housing counselor. He/she knows the various mortgage products and can assist you in finding the best program to meet your needs.
Most lenders are calculating pre-approval amounts based on 3- 4 times your annual income depending on minimum monthly credit debt. However, lenders will increase this amount if you are planning to purchase a multi-family home. They will add about 70% of the projected rental income into your monthly gross amount.
Lenders will only consider your total housing cost. These costs are the mortgage principal, interest, taxes, and insurance. The housing costs will also include monthly maintenance fees if you are purchasing a cooperative unit and monthly homeowner association fees or common charges if you are purchasing a condominium. Your minimum monthly credit debt will also be calculated in your debt-to-income ratio (DTI).
You will need to review your monthly budget to estimate the amount of money you can comfortably afford to spend on a mortgage payment. After reviewing your monthly budget, you should have a realistic idea of the mortgage amount you can handle. Also, if you are planning on a down payment amount that is less than 20% of the purchase price you may have to pay Private Mortgage Insurance (PMI). This insurance is to remain part of the mortgage payment until you have paid off 20% of the outstanding principal balance.
However, some lenders have a first-time mortgage product that will waive the PMI if you have a certificate of completion from a HUD approved housing counseling agency. Harlem Congregations for Community Improvement, Inc. (HCCI) is approved. All our housing counselors are HUD certified and are trained to assist you through the home buying process. HCCI offers a 4-part virtual seminar series on Thursday evening from 7:00 – 9:30 p.m. You can register on our website – hcci.org.
If you are interested in attending the workshop or have questions regarding the home buying process, contact Rev. Dr. Charles Butler at (212) 281 4887 ext. 231 or email at cbutler@hcci.org.
