Guide to Choosing the Right Mortgage
There are a lot of mortgage products out there, and many more brokers hoping to sell them to you. When buying a home, it’s important to have a good understanding of exactly what you’re getting yourself into. After all, the vast majority of mortgages are essentially a contract that legally obligates you to 30 years worth of payments. As a result, it goes without saying that you should do your homework, which includes figuring out how much you can afford to pay on your mortgage, and what type of mortgage is right for you. Below are some tips on determine how much mortgage you can afford.
How Large of a Mortgage Can I Afford with My Income?
A common metric used by lenders to answer this question is the debt-to-income ratio. There are two ways to measure the debt-to-income ratio, or DTI:
- Front-end ratio
- Back-end ratio
The front-end ratio simply plots the expected housing payment against the borrower’s income. In this case, lenders like to see a DTI of 28% or lower. So, for example, if you earn $60,000 annually (before taxes), this equates to $5,000 a month of 
income. That would mean that the monthly mortgage payment should be less than $1,400 (.28 X $5,000). The back-end ratio takes into account all of the borrower’s revolving debt, and thus has a higher threshold. Evaluating theDTI this way, lenders generally are willing to approve borrowers at or below 36%. Returning to our example of a $60,000 income, now we need to make sure that the borrower’s potential mortgage, along with any car payments, credit card payments, etc, all come in at $1,800 or less (.36 X $5,000). These ratios of course depend on several factors, including the interest rate of your loan and the size of your down payment. Also, the ratios are only guides, and are not set in stone. A very good credit score, for example, could enable a borrower to take on a higher amount of debt. To get a better idea of exactly what you can afford, head over to our mortgage calculator and plug in some numbers.
Title Insurance in Atlanta
Once you’ve settled on the appropriate mortgage, you need to protect your new investment. The first step to doing so is obtaining a quality title insurance policy. Here at Wharton Law, we specialize in setting up our clients with the best title insurance in Atlanta. Call us today at (404) 965-2767 in order to get started.