New Home Mortgage Loans: Don't Spend All the Money

When you take new home mortgage loans, you may be tempted to borrow as much as you possibly can. The bank will often look at your income and your assets that you have saved and let you know how much you can borrow. Usually, people get this assessment from the bank, called a pre-approval, before they begin looking for a home so they know what their budget is. However, before you go out and borrow a huge sum of money, you need to think about your financial goals and what you are really comfortable borrowing and being able to afford.

Deciding How Much to Borrow for New Home Mortgage Loans

When you decide how much to borrow for a new home, you should consider several factors:

• How much of your monthly income will be going towards mortgage banks. This is called your debt to income ratio, and banks use a calculation called PITI to determine this percentage (PITI stands for principle, interest, taxes and insurance). Depending on your lender, you'll usually be allowed to spend about 40 percent of your income on housing- but think about whether this really works for you. You might even want to "practice," setting aside the full amount necessary to pay your mortgage for a few months to see if you really have enough left over
• What are your financial goals. Just because you have enough money now to pay a mortgage payment, doesn't mean you always will. If there are two spouses who are working, for example, and one plans to quit and stay home with the baby, think about whether you'll be able to afford the mortgage on just one salary

Getting Help

These are just a few of the considerations you need to think about when deciding how much to borrow for new home mortgage loans. You should speak with an experienced real estate attorney who can help you to more fully grasp the obligation you are taking on and who can give you some guidance on whether the mortgage loan is right for you.