Housing Affordability

How Much Can You Afford?

The first step is to examine your lifestyle budget. Your budget will help determine the size of  home and what neighborhoods in Chicagoland area will suit you. Bear in mind, that lenders will look at more than your income in determining what they will loan you.

Prequalification vs preapproval

I would be happy to refer you to reputable lenders that will either talk to you about your affordability or they will base it on facts. By taking your word of mouth details, the lender will prequalify you with an estimate. Today, with all the complexities of  home financing, the estimate doesn't "hold water" for most sellers and listing agents. The pre-approval is based on documentation and facts on your personal information through a process with a lender and in return, you will have a commitment, subject to appraisal, that you are qualified for the loan. The pre-approval is a commitment that they will loan you x based on facts.

Important Factors for most lenders:

• Your gross monthly income
• Your credit history
• Your current outstanding debt or obligations
• Your savings--the amount you have available for a downpayment as well as the closing costs you will incur. The larger the down, the more lenient the lender will be about the qualifying rate. Someone with 20% dpwn will be allowed a higher limit in the ratios, than someone offering only 5% down. Closing costs can be negotiated with a seller to absorb some of the normal costs in your offer. Example, you could ask the seller to absorb 2% of your closing costs, if you offer him 2% more in selling price.
• Your choice of mortgage ie 30 year fixed product, FHA loan, VA loan or an ARM (adjustible rate mortgage).
• Current interest rates

Ratios

• Debt-to-Income Ratio-Most lenders would like all your monthly expenses not to exceed 35% conventionally or 40% considering FHA/VA standards.
• Housing expense ratio-28-33% of your gross monthly income will make Lenders happy. On the other hand, your comfort ratio maybe 25-28%, which is what your parents would have enjoyed.

Other Loan programs are available in some local communities as a "First time Home buyer" programs in our Nothwest Suburban Chicagoland market. Some offer assistance that are loans for a 3-5 year period of time, and then the loan can be forgiven. There are income restrictions in most of these programs.