Buying a home is often considered in many circles as one of the most important investment decisions an individual will make their entire life. Whether it is a starter home, a home bought during the peak of a career, a home for a large family, or a retirement home, buying a home is a key to success. The real trick in a home buyers’ life seems to come with the first purchase. Buying homes takes real life experience and knowledge that only so much can be taught from research and reading. One of the most important parts of a homeowners purchasing journey is not getting in over their heads. Home ownership could become detrimental if the homeowner defaults on a home and can no longer make their payments. Because the threat of default is real, some basic principles should be employed to keep the purchasing amount in check.

A national official and unofficial standard is the debt-to-income ratio. When an individual desires to purchase a home they will most likely need to borrow money from a lender. A lender will want to manage the personal risk involved with lending a loan to a borrower. The lender will consider all of the debt their borrower possesses and then they will divide it or weigh it according to the personal income a borrower makes per month. In a different respect, a borrower does not want to borrow too much and be over their heads, so the debt-to-income ratio is a measure of how much debt one can have with a given monthly income.

The general guideline for buyers or borrowers with respect to the debt-to-income ratio is 36%. A numerical example of this is an individual earns a monthly income, before taxes, of $5,000.00. To apply the ratio, simply take the $5,000.00 and multiply it by .36 or 36% which will give the total of $1800.00. $1800.00 is the amount of total monthly payment on debt an individual should limit themselves to accruing at any given time. The debt-to-income ratio of course refers to total debt meaning credit cards, student loans, car payments, etc.

Making this rule even more specific, a person’s mortgage should never be more than 28% of the total monthly income. In other words, if a person is making a total of $5,000 a month, they should not exceed the $5,000 times .28 or 28% or $1,400 a month. So, a person earning $5,000 a month should not have a total monthly debt payment exceeding $1800 and should not have a monthly mortgage exceeding $1,400.

Rarely will an investment guru tell an investor that exceeding the 36% and 28% guidelines is acceptable. The exception seems to be the upper class. If an individual makes a considerably larger sum of annual income each year than the average American some investment advisors or mortgage companies will allow for a 45% debt-to-income ratio. This feature most likely comes from the fact that the every day expenses of life can be covered by a household that has extra disposable income.

Ratios can also be higher when a property is bought using a VA loan. If you are in the military or have served in the military you may qualify for a VA loan. Check with your loan officer to verify the details. Also, VA loans may also allow you to put 0% down on your home.

Author Bio: This article is brought to you by Juhlin Youlien who writes for a website featuring Fountain Hills AZ homes for sale, Tempe AZ homes, Phoenix real estate and Tucson AZ homes for sale.

Category: Real Estate
Keywords: homes, real estate, buying a home, selling a home, realtor, realtors, loan, mortgage, foreclosure, s