Most of the lenders would not like you to take the loan that might overload your ability of repaying it.
When you think of taking a home loan, you need to consider your financial state. What is your earning and how much do you owe would determine how much a lender would lend.
One should first determine his gross monthly income. It includes your recurring or regular income which you can document. And in case if you are unable to form the document or if your tax return is not visible then you would not be able to take loan. In case if you have certain income producing assets like stocks, or real state, then they can be included in the calculation.
Next is the calculation of your monthly debt load. It includes all your monthly debt obligations such as car loans, credit cards, personal debts, installment loans or other ongoing monthly obligation such as, child support or alimony. If it is revolving such as credit card, use the minimum amount of payment for its calculation. In case of installment debt, current monthly payment will be used for the calculation of your debt load. A debt is not considered when it is to be paid in less than six months. And the sum of all this is your monthly debt service.
Remember there are various loan programs in today’s lending market with different guidelines. In addition to this, there are various factors under your control which might affect your monthly payment. One should investigate or contact different lenders for a loan program which might meet your needs.
I would like to review some of the costs which you may expect to pay in regard of the new home loan. The actual expenses which the lender incurs during the origination of a new home loan are known as closing costs. Loan discount points, are in the form of prepaid interest, as essence. One discount point is the same as that of one percent of amount borrowed. At the time of closing it is paid in cash to the lender in the form of interest. Discount point helps in the lowering of the stated interest that you pay on the loan taken by you.
Last is the issue of prepaid items. Most of the home lenders would like you to open an escrow account. Escrow account is nothing but saving account that the lender holds. Every month in addition to the regular loan payment you will have to deposit a sum for home owner’s insurance and property taxes in this account. When the next bill will come due of insurance or taxes, your lender will make the payment for you. The reason why all this matters today is, on the basis of the day you purchase loan, you will have to open an escrow account with about 2 month worth for the insurance payment and 9 month worth for taxes. In addition to this, you will have to pay first year insurance policy completely. These costs are known as prepaid items, and one should pay them for himself.