Home Companies Homeowners – Are Your Debt To Income ratios Too High?

Homeowners – Are Your Debt To Income ratios Too High?

by gbaf mag

What is the housing ratio? A housing ratio is the percentage of total monthly debt versus the total monthly income. The housing expenses refers to expenses that consist of mortgages, improvements, maintenance and taxes, as well as other expenses such as the payments on capital assets. The monthly debt refers to all outstanding debt, including credit card balances and personal loans. The calculation is usually made by dividing the monthly debt by the monthly income and then dividing the monthly income by the number of bedrooms in the home.

There are many factors that influence the housing expenses and the debt-to-income ratio. The housing expenses are affected by the size of the loan, interest rates and duration of the mortgage. Other factors include credit history, local property taxes, insurance and upkeep, and amount of available space within the current property owner’s designated area. There are several types of mortgage plans that include adjustable rate mortgages, fixed rate mortgages, and interest only mortgages. Each type has its own advantages and disadvantages.

When determining the best way to control debt-to-income ratio, one must first consider the purpose of paying off the mortgage. Are the mortgage payments designed to free up the homeowner from future debts or are they merely the beginning of a long-term plan to repay the loan? If the purpose is to free up future debts, then a lower debt-to-income ratio is better. If the purpose is to pay down the mortgage quicker, then the debt-to-income ratio should be higher.

Another factor that influences the housing-to-income ratio is the amount of available funds to cover living expenses. The more money available for living expenses, the lower the debt-to-income ratio. On the other hand, if there is not enough money for living expenses, the homeowner will have adequate funds to cover the mortgage, closing costs, and possibly even insurance and taxes. In this case, raising the front-end ratio can cause trouble.

Housing costs, including mortgages, are typically paid off after the homeowner has been living in the house for about five years. The longer they stay in the house, the higher the housing expenses will be. Because of this, it is best to start looking at the housing-to-income ratio when a new home is being considered. The closer the monthly gross income is to the mortgage payment, the better the front-end ratio will be.

Once a homeowner has established that the monthly debt-to-income ratio is reasonable, it is time to begin looking at other methods to increase the debt-to-income ratio. If the goal of the remodeling or addition is to free up money for living expenses, then the homeowner might consider reducing non-mortgage debt. This includes credit cards, personal loans, and auto loans. The goal here is to lower the amount of interest paid on those accounts. It would also be a good idea to pay down the credit card and auto balances as much as possible before looking into new financing.

It is important to remember that just because the debt-to-income ratio is lowered does not mean that the end result will be a more affordable home. There may be additional remodeling required to close the gap between the old and new. It may be necessary to raise the equity in the home substantially. Whatever the case, it is important to remember that the goal of remodeling the home is to create a home that meets the current market needs rather than creating a home that is overpriced relative to similar homes in the neighborhood.

In summary, a careful review of the housing-to-income ratio before starting a home remodeling project should help the homeowner understand the importance of that ratio in their overall plan. It is an important part of the overall mortgage process. Maintaining the proper housing ratio helps the lender determine the long term affordability of the loan. If the homeowner takes on too much debt to finance the home, they will never be able to sell the home. A low housing-to-income ratio can provide the necessary ammunition to convince the lender to provide a good loan for the remodeling endeavor.


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