Tyler Minges Home Buyers Guide 2017 Home Buyers Guide | Page 11

HOME FINANCING | 8
DETERMINING YOUR
ELIGIBILITY
CREDIT SCORE
Your credit score is a major factor lenders use
in determining your eligibility for a home loan.
Maintaining a strong credit score will earn you
the most favorable mortgage rates. If your credit
score is not strong you can still get approved but
might now qualify for today’s lowest rates.
DEBT-TO-INCOME RATIO
Mortgage lenders require that your total
monthly debt including car loans, credit
card bills, and student loans be no more
than 36 percent of your gross monthly
income. This is your debt-to-income ratio. If
your ratio is too high, consider paying down
high interest credit cards to get below the
required limits.
YOUR MONTHLY MORTGAGE PAYMENT
When you own a home, your fiscal responsibility goes deeper
than just making monthly principal + interest payments to the
bank. Real estate taxes and homeowners insurance are due, too.
Principal and interest payments are typically due monthly
to your lender; real estate taxes are due to your local taxing
authority; and homeowners insurance is due to your insurer.
MORTGAGE PAYMENT BREAKDOWN
Your total monthly housing is calculated as follows :
• Your monthly mortgage principal payment
• Your monthly mortgage interest payment
• Your annual real estate tax bill *
• Your annual homeowners insurance bill *
*pro-rated monthly
DOWN PAYMENT
It’s a good idea to approach lenders with
a down payment in hand. One of the
mortgage requirements that determines
your eligibility for mortgage loans is your
loan-to-value ratio (LTV). The more favorable
the ratio of how much the property is worth
to the amount you’re borrowing, the more
qualified you become.
Collectively, these elements -- principal, interest, taxes,
insurance - are known as PITI. (pronounced “pee-eye-tee-eye”)
The elements that make up a mortgage payment vary from
day-to-day, and from home-to-home. This is because mortgage
rates change daily, which change a home’s principal + interest
payment, and because every home’s tax bill and insurance bill
are different.
A home in storm-heavy Miami, Florida, for example, will typically
cost more to insure than a home in Cincinnati, Ohio. The same
is true for a home in the San Francisco Bay Area which may be
more susceptible to natural disaster than a home in Florence,
Kentucky.
MORTGAGE ESCROW
Mortgage escrow is when a mortgaged homeowner sends
1/12 of its annual real estate tax bill and hazard insurance
premium to its mortgage lender each month along with the
regularly scheduled mortgage payment. The lender collects
mortgage escrow payments monthly, then distributes them
to the homeowner’s county assessor and insurance company
semi-annually, respectively, when the payments come due.
Tyler Minges, HUFF Realty | BUYER’S GUIDE TO REAL ESTATE