How much house can you afford?
It might not be as much as you thought. Stricter mortgage lending guidelines are rolling out Jan. 10, restricting the amount homebuyers can borrow to help ensure they can afford their mortgage.
Under the new federal guidelines, a borrower’s total monthly recurring debt—including car loans, student loans, mortgage payments and other debt—cannot exceed 43 percent of his or her gross monthly income. Previously, the debt-to-income ratio was restricted to 45 percent.
“Some lenders were taking advantage of people just to get their numbers up,” says Jeann Digman, Dupaco’s vice president of mortgage lending. “We need to make sure we’re putting them in the right home and that we’re not setting them up for failure down the road.”
For first-time homebuyers, the new guidelines can be stifling, perhaps even a homeownership deal breaker. If you’re in the market for a house, follow these steps to help ensure you’re buying a home that’s realistic for your budget:
- Review your credit. Interest rates and closing costs are based on your credit score. Schedule a free Dupaco Credit History Lesson now to give yourself time to build your score before you need the loan.
- Review your total financial picture. Keep your calendar handy, and schedule a free Dupaco Money Makeover, too. Find out whether you can restructure some of your other debts to stay within the new lending guidelines and free up more money for your down payment. If you're expecting a tax refund, ask how it will best help you reach your homeownership goal. To qualify for fixed-rate financing, your down payment must be at least 5 percent.
- Get pre-approved before you shop. "It's going to help if they get pre-approved first, so they know what they can afford and don't have their heart set on something they won’t be able to get," Digman says
By Emily Kittle