Your Path To Homeownership: 8 Budget Strategies To Make It Happen
Do you dream of one day owning a home? Do you wonder what budget strategies apply to purchasing a home? Here are eight budget strategies to help on your path to homeownership!
Are you contemplating buying a home? There are a few different financial strategies for purchasing a home. Here is a look at eight budgeting strategies for purchasing a home to help you on your path to homeownership!
8 Philosophies About Purchasing A House
There are different money philosophies when it comes to purchasing a house. Here are eight different financial strategies to consider when you are ready to buy a home.
Basic 20% To 30% Rule
The basic thirty-percent rule says to spend no more than thirty percent of your after-tax monthly income on a mortgage. There is a variation of this rule that says only to pay twenty-percent. The total cost of housing, from insurance to property taxes, is included in the total thirty percent amount.
Another advantage of paying more than thirty percent for a mortgage is the homeowner does not need private mortgage insurance (PMI). It is an additional expense that a homeowner is responsible for paying to their lender each month on top of the mortgage payment. It makes things simpler for the new homeowner and the lender.
Why Is The 30% Rule Standard Practice?
The thirty-percent rule is a standard practice when it comes to home ownership. The reason is that many lenders do not want to take a risk on a mortgage if the mortgage client may file to make a payment. There may be banks with lenders who will risk over thirty percent, but you may have to pay a higher mortgage rate since the lender is accepting more risk.
With a mortgage, you are responsible for paying the bank, which is the lender. If the homeowner does not make payments, the bank can take away the home from the homeowner for failing to make payments on time.
This is referred to as a foreclosure. It is a legal process where the bank or lender takes back ownership of a mortgaged property sold to the borrower. With a mortgage, the borrower is responsible for paying the monthly mortgage to the lender. The bank or lender can take back the foreclosed property if you default on a mortgage. That is because you do not own the house.
28/36 DTI ratio
Lenders use the 28/36 DTI ratio to determine if they approve someone wanting a mortgage. Lenders use it to measure a person’s debt-to-income (DTI).
The ratio states that a mortgage borrower’s income should not exceed twenty-eight percent of a person’s monthly income used to pay for housing expenses. Thirty-six percent of a household’s monthly would be used to pay off remaining debts.
This ratio is a simple strategy for assisting lenders in determining if someone is eligible for a mortgage loan. Keep the DTI ratio in mind when considering buying a house. It could help you to better qualify for a mortgage from a bank.
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