Purchasing property is a significant and potentially life-changing investment. While this milestone is worth celebrating, it comes with more permanent responsibilities and consequences than renting typically does. Champions Mortgage, a mortgage broker in Houston, TX, helps hopeful homeowners achieve the American dream.
Our team has extensive experience in helping new homeowners navigate mortgage challenges. How much of your income should go to the mortgage? Learn how mortgage payments work below.
What Is a Mortgage?
When you purchase a new house, you typically offer a downpayment to cover the initial selling cost. You might contact a lender about covering the rest of the property price. If the lender agrees, they pay for the rest of the property.
Then, you will pay the lender back through a mortgage agreement. The mortgage payments depend on several factors.
What Might Your Mortgage Consist of?
Different lenders have varying requirements to minimize loan risks and ensure you pay on time. First, they calculate the initial mortgage payment. This raw number reflects the monthly amount needed to eventually pay for the house within the designated period.
Some lenders also include property taxes and homeowners’ insurance in their mortgage calculations. If you go this route, you’ll pay a higher price but won’t have to worry about finding suitable insurance or calculating your owed taxes.
How Will Your Lender Determine Your Mortgage Amount?
Mortgage rates in 2024 vary due to numerous factors. Some primary influences include payoff time frame and whether you have a fixed mortgage.
For example, a 30-year mortgage costs less but takes longer to pay off than a 15-year agreement. However, fixed mortgages don’t fluctuate like variable ones. The elements listed below will also determine your mortgage rates.
Gross Income
How much of your income should go to the mortgage depends on how much you make. Gross income refers to the money a person makes before taxes. Note that this differs from net income, which covers the money you take home.
Mortgage-to-Income Ratio
Once the lender calculates your gross vs. home pay, they will estimate the amount you can realistically put toward a periodic mortgage payment. This mortgage-to-income ratio might include:
- The principal balance of the original borrowed amount
- The tax estimate
- The interest rate
- The insurance payments
Debt-to-Income Ratio
Next comes the debt-to-income ratio or DTI. This calculation shows the percentage of your gross income going toward paying off debts. If you have a significant debt, you might struggle to obtain a lender’s backing.
Credit Score
Finally, debt amounts are often linked to your credit score. If you have numerous credits and rack up high, unpaid debts, your credit score will suffer. However, regularly paying off one or two credit cards improves your score and makes you an attractive lending candidate.
How Much of Your Income Should Go to Your Mortgage?
Ideally, no more than 28% of your gross income should go toward mortgage payments. You also shouldn’t incur more than 36% overall debt compared to your gross. However, some lenders are more flexible if you have a good credit score and a pre-existing debt-to-income ratio.
Plus, the above formulary is merely the framework for what you can afford. Consider your lifestyle, hobbies, and additional expenses before determining the mortgage payments you can readily handle. Mortgage calculators are fantastic tools for educated estimates.
Choose Champions Mortgage for Houston’s Preferred Lender
How much of your income should go to the mortgage? Allotting no more than 28% is a good starting point. Champions Mortgage can help you calculate realistic mortgage payments for your new Houston home.
Learn about other homebuying topics, like the loan application process, for more information. Call 281-727-2500 to connect with our loan officer.
