With the onset of 2012, the most important question that is bothering prospective homeowners is how they can beat the mortgage famine this year. Will the tighter lending regulations of the banks and the financial institutions affect the fate of the prospective homeowners? According to the present mortgage market conditions, hundreds of homeowners who are above the age of 50, the self-employed and the first-time home buyers will find it extremely difficult to grab new lines of credit as they need to unlock wealth that they’ve tied up in bricks and mortar and then follow up to get their first home.

While the mortgage giants and the traditional lending institutions plans to ask borrowers to prove their gross monthly income and their ability to repay the mortgage debt, there is a potential risk that the government’s interference may even come up with some unintentional circumstances. Due to the banning of the self-certification mortgage loans and have restricted access to the home mortgage loans that won’t be repaid before the borrower reaches his retirement age, the self-employed people find it difficult to buy a new house. Though the economists find it impossible for the mortgage market to recover from what it’s going through, there are certainly some steps that the borrowers can take in order to grab the best mortgage loan and beat the mortgage famine.

• Study your credit score: Good credit score is always the key to snagging a home loan in this tight lending environment and if you too want to be one among them, you have to ensure that you study your credit score by ordering a free copy of your report from the three credit reporting agencies. Review the reports carefully to ensure that all the erroneous information that is responsible for dropping down your score is removed. Most lenders nowadays will require a score that is above 720 in order to get a loan at an affordable rate.
• Establish how much you can afford: Don’t rely on the mortgage lender to tell you how much mortgage loan amount you’ll be able to afford. Plan your post-mortgage budget and leave some space for unexpected expenses so that you know how much money you can exactly pay back every month on the mortgage loan. You can even use the mortgage affordability calculators to help yourself.
• Consider your DTI ratio: Apart from your credit score, another figure that holds enough importance during the mortgage buying process is your DTI ratio. This is nothing but the ratio between the debt amount that you owe and the monthly income that you make. If the mortgage lender sees a high DTI ratio, he will either reduce the loan amount or increase the interest rate to shove off his risk. Repay your revolving debt, especially in the form of credit card debts so that you can easily lower the DTI ratio and prove to be trustworthy to the lender.

The US Department of Housing and Urban Development (HUD) has provided counseling agencies throughout the nation that help all the struggling homeowners and the prospective homeowners with advice that can help them prevent a foreclosure. Get help from their valuable advice so that you may be able to take out the right mortgage loan for your needs.

We apply for a mortgage for various reasons. But when you do apply for a mortgage, you need to have an idea about “how much mortgage can I afford” because no one wants to lose his house to foreclosure. Basically, it depends on two factors: income and the amount of debt.

Factors determining mortgage affordability
The factors which determine “how much mortgage can I afford” are given below:
 

• Basic earning: Lenders normally lend 3 to 3.5 times your gross annual income. Your gross annual income is your basic salary plus any guaranteed bonuses. Some people earn a basic salary. While some people such as recruitment consultants, working in a marketing division, earn a low basic salary but they earn lot of money through commission that is not guaranteed. Lenders will only look at the guaranteed chunk of income. 

• Debts: Lenders also look at your regular monthly debts and obligations such as instalments loans (bank loans, auto loans, etc), real estate loans, revolving accounts, etc. Your housing expenses and long-term debts must not be more than 33 percent to 36 percent of your gross monthly income. For Federal Housing Administration (FHA) loans, this figure must not be more than 41 percent of your gross monthly income. Lenders consider monthly expenses extending more than 10 months as long-term debt.

If you analyze these two factors then you can get the answer to your question “how much mortgage can I afford”. However, there are various other factors that determine how much mortgage you can afford to borrow in reality. The mortgage calculator also helps in determining how much mortgage can you afford in reality.

Role of the mortgage calculator
There are many mortgage calculators available in the market (interest-only calculator, online-mortgage calculator, refinancing calculator, amortization calculator) that can give an idea about “how much mortgage can I afford to borrow”. The loan mortgage calculator helps you to calculate home loans and compare the cost options. You have to simply put the necessary data (total amount of loan, rate of interest and the total term of the mortgage loan) into the calculator. Then the calculator will help you to know about your monthly payment amount, length of time it will take to pay back your loan. It compares your monthly income with your upcoming monthly payments, how much of your payment will go towards repaying the principal and how much towards the interest. Thereby you will get can estimate about how much mortgage you can afford to borrow.

A quartet of top U.S. bank stocks rose on Wednesday after J.P. Morgan Chase & Co. reported earnings that surpassed Wall Street estimates, and the insurance sector also weighed in with gains to lift financial stocks more than 2%.

I suggest that the management at JPM horde all that cash, as the next big mortgage resets occur in 2012 (5 years after the peak of 2007, when everybody and their mother, dog, parakeet, and gerbil bought houses with no money down, poor credit, and insufficient income).

Now that many of those same people are now either unemployed or still making less money than their mortgage payment, the pressure is going to be HUGE on the housing market, banking sector, and overall economy. Let’s hope the news that the economy and employment pictures are improving, else we fall into a really nasty tailspin. Let’s also hope I’m wrong about the resets (here’s the good personal news: my mortgage from 2004 reset at a lower interest rate).