Real Estate Mortgaging - Lender Limit

Once you decide to buy a real estate property, the first thing, you should do is to calculate what will be the financial impact on your monthly budget towards this mortgaging.

There are certain key factors towards calculating the monthly impact. We are considering that you are repaying at the most popular type of mortgaging - "Fixed Rate Mortgage" (explained later), where you need to pay the interest and part of the principal component every month.

Key Factors

Borrower's Liquid Finances

Track records of the recent past. Bank Statement, Credit Card Statement, and Income Certificates etc.

Borrower's Ability

It depends upon certain ratios

Housing-to-income ratio (Housing expenses : Gross Income) The Housing-to-income ratio varies between 25% and 34%. But "The mortgage industry's conservative guideline is that housing expenses should be 28% or less of income".

Debt-to-Income Ratio (Total Debt obligation : Gross Income) It may range again between 33% and 43%. But "The mortgage industry's conservative guideline is that these debt payments should be 36% or less of income".

Note:

All these ratios are calculated on monthly basis i.e., monthly expenses vs. monthly income

All these ratios may be changed depending upon the special financial circumstances

Gross Income includes all of your income from salaries/ dividends/ agency services/ consultancy fees/ House Rent Income and/ or any other legitimate income

Housing expense includes your payment for Principal, Interest, Property Taxes, hazard insurance, private mortgage insurance, homeowner's fees (the latest two are optional).

Monthly debt obligation includes the sum of monthly repayment schedule (EMI or other types) towards the total Loan liabilities including the prospective housing also. One may have other personal loan/ vehicle loan/ educational loan, for which he is repaying on monthly or on adhoc basis.

Web site Reference for "Mortgage Industry's Guideline" - http://finance.realtor.com /

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