When contemplating the purchase of a home in Metropolitan Detroit, one of the primary considerations should be assessing your borrowing power. In other words, how much house can you afford? This holds great importance for several reasons: it prevents you from exploring homes that are beyond your financial means, it ensures you’re not limiting/overextending yourself if you can actually afford more or less than you may think, and it helps you address any potential issues with your debt ratios before it’s too late.
The first two reasons for understanding your borrowing power are relatively straightforward, but the third one can be a bit more complex. Debt ratios are the crux of determining your buying power. If your debt-to-income ratio is too high, securing your desired mortgage amount may be a challenge. The debt-to-income ratio is calculated by combining all the minimum payments of your monthly debts from your credit report, including the prospective mortgage payment, and comparing the total against your various income sources. Lenders like to see debt ratios at 43% or below but can and do approve loans with debt ratios as high as 50% for conventional loans and 55% for FHA, with compensating factors. While this might seem like a straightforward calculation, it can become intricate in specific situations.
If you have multiple income sources, it’s essential to understand how each source affects your debt-to-income ratios. Some income sources may contribute 100% to your overall income, while others may be considered at a different percentage, or some may not count at all.
If you have monthly debt obligations that don’t appear on your credit report like spousal/child support, it is important to understand how non-credit report debts are looked at by lenders when calculating debt ratios.
While online mortgage calculators can be helpful for estimating your borrowing power, it’s crucial to engage with a qualified mortgage professional in Metropolitan Detroit. They can provide you with tailored guidance and ensure your calculations align with the local real estate landscape and financial dynamics. By doing so, you’ll avoid house-hunting based on inaccurate information.
If you have any questions regarding your borrowing power in Metropolitan Detroit, please feel free to reach out to me, and I’ll assist you in obtaining precise numbers. If you have any insights or additional tips related to calculating borrowing power in the Metropolitan Detroit area, I invite you to leave a comment.