How to Know if You're Ready to Get a Home Loan

Before you even try to do some house hunting, you need to ask yourself first if you can afford to get a home loan. No matter what factors you do consider in a home as far as location or size, age, or even style is concerned, you'll end up being broke if your home loan payments consume more than half of your monthly income. So how would you know if you're financially fit to get a loan?

Compute an Affordable Payment

The Federal Housing Administration would use the 43 percent debt to income ratio as a guideline for approving home loan applications. The DTI ratio is used to know if the buyer has the capability to repay the home loan.

All debts including your housing expenses such as the home owner's association fees, home loan, homeowner's insurance, property tax, etc., shouldn't be more than 43 percent of your monthly income.

The other factor that you also need to consider your DTI or front-end debt to income ratio. Most of the monthly loan that you have will be coming from the housing expenses only. So you have to plan your expenses carefully together with your gross monthly income. 

Always leave some space for your expenses to wiggle a bit. Leaving some allowance on your savings would help you especially if some unexpected expenses need to get paid.

Look at other Financial Factors Aside from Debt

Before you even start your mortgage payment practice, try to give yourself an elbow room when it comes to your finances by removing the amount that you spend on your hobby from the payment that you calculated to get your DTI. These expenses wouldn't help you get your dream home, so you might as well want to cut back on some of your hobby expenses. Or even just start considering getting a less exessive home instead so that you can still get to live your current lifestyle.

Always try to Consider Other Factors

Don't get a house based on your exact the dream home. Accept the fact that you won't be able to get the exact home that you've always dreamed of, but you can still make things work. Just let yourself be open for other options. Always consider your financial capacity to pay the home loan in the next couple of years. Be practical when you're making decisions, especially if you're going to get a house. Keep in mind that you will be paying the house for more than a decade so make sure that you're financially stable enough to support your monthly expenses plus your mortgage payments as well.