Try your mortgage on for size

March 6th, 2014 6:35am
Try your mortgage on for size

Under the new "ability-to-repay" rules, there are limits imposed on how large of a mortgage a potential homebuyer can take out based on his or her income and existing debt. Under the rules, which took effect this year, the maximum a borrower can hold in yearly debt payments cannot exceed 43 percent of his or her yearly income, according to the Consumer Finance Protection Bureau.

In reality, banks tend to be a little bit more stringent. According to U.S. News & World Report, most banks will limit you to a maximum monthly mortgage payment of 28 percent of your gross monthly income. Total debt payments also usually can't exceed 36 percent of your gross monthly income. While some borrowers are concerned about not being able to access credit, the news source suggests that borrowers that "try on" their monthly mortgage payments may find that to be comfortable with the amount, they need to take on even less debt than what they are legally "able to repay."

To try on your monthly mortgage payments, the news source recommends that potential homebuyers calculate the mortgage payment they intend to be making. From that, they should subtract their monthly rent payment. They should put the number they are left with into savings every month for six months. After this time, they will not only likely have significant savings, they will also have a better idea of what it is like to live with their intended level of mortgage.

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