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How Much House Can You Afford?

The house that you've always admired from afar has finally come on the market. Can you afford it?

Your ability to buy your dream home comes down to a simple formula called the debt-to-income (DTI) ratio. Lenders use DTI ratios to evaluate the cash flow you have available to pay your mortgage.

Lenders look at both the percentage of your income that goes toward housing expenses as well as the percentage that goes toward covering all of your monthly debt, including your mortgage debt and other housing expenses. You can easily calculate how much home you qualify for by using the online calculator at our website. If you prefer to crunch the numbers yourself - or want to really understand where the numbers come from - here's how:

To calculate your housing ratio:

  1. Add up your housing expenses, including monthly mortgage payment, real estate taxes, homeowner's insurance, and other regular expenses
  2. Divide that number by your monthly income before taxes
  3. Convert the resulting decimal to a percentage by multiplying by 100 (i.e. .20 equals 20%)
For example, if your monthly housing expenses total $1,000 and your monthly income is $4,000, your housing ratio is 25%.

To calculate your total debt-to-income:
Repeat the process outlined above, but include credit card bills, car loans, child support, student loans and all other monthly financial commitments to your housing expenses.

For conventional loans, lenders like to see housing expenses at 28% or less of income and total debt-to-income at 36% percent or less. In most cases, you won't qualify for a loan if your DTI exceeds 45%.

But just because you qualify for mortgage payments that total 28% of your gross monthly income, it doesn't mean that you should really spend that much. Calculations are based on gross income, without regard to the taxes and benefits that come out of our paychecks each month. Similarly, monthly debt calculations don't take into account your expenditures for food, clothing, utilities, and other daily expenses that you pay for out-of-pocket. It is important to work with a banker, financial planner, accountant or mortgage broker to figure out the size mortgage that you can truly afford.

Pre-qualification is the best way to make sure that you are shopping for homes that really are in your price range. Sellers will often only accept offers on homes from pre-qualified buyers.

We're here to help you calculate exactly how much house you can afford and provide pre-qualification documentation. Please give me a call at 617-965-1236 or email me if you need assistance.

October's Home Value Improver
Bright colors lift spirits during dark days.

How to Avoid the Winter Blues

Do you suffer from Seasonal Affective Disorder (SAD)? Also known as winter depression, this syndrome affects many people at this time of year, when the changing seasons cause an interruption in our Circadian Rhythms, or biological time clocks. Did you know that a few easy changes to your home can help hold those blues at bay? Here are a few suggestions:

Brighten Your Day

  • Ensure good exposure to daylight - open your window shades during the day. This will help lift your spirits.
  • Rearrange your furniture - create a sunny corner where you can curl up. Sunlight, which emits all colors of the rainbow, can improve your mental health.
  • Turn on the lights - using full spectrum lighting in your kitchen, family room and other gathering areas can simulate the effects of sunlight.
Color Yourself Happy
  • Paint your walls - vivid colors such as Pumpkin Orange, Sunburst Yellow or Summer Green in your favorite rooms can help carry you through the bleakest of winters.
  • Brightly accessorize - dazzle yourself with colorful rugs, pillows or artwork.
Come Into Bloom
  • Grow indoor plants - watching them grow and thrive can make you happy and more productive.
  • Arrange a bouquet - bright bursts of cut flowers enliven your table and give a fresh fragrance to a room.
Implementing some of these simple solutions can have a real impact on SAD, and result in a brighter and more cheerful winter season!

Janis Luedke, owner of JALARTS, (www.jalarts.com), combines Interior Design and the elements of nature to create healing environments for residential and commercial applications. She specializes in color, eco-friendly materials, furniture and art.

Westchester Mortgage

October 2012

In the pre-recession housing boom times, lenders were granting large mortgages to buyers who sometimes couldn't afford them. When the economy stumbled, a significant percentage of homeowners simply couldn't handle the payments. Now that the housing market is on a more even keel, lenders are much more cautious about evaluating how much house a buyer can truly afford. In this month's feature article, we take a look at how you can figure out how much you can spend on a home within today's lending requirements.

I also wanted to share some tips to banish the blues as the days get shorter and colder. Daylight Savings Time ends on November 4th, which means most of us will soon be coming home from work in the dark. Janis Luedke, owner of JALARTS, a firm that uses interior design and natural elements to create healing environments, writes this month's "Home Improver" column about simple ways that we can feel better in our homes during these dark days.

As always, please give me a call if I can answer any questions!

Best regards,
Debbie Siegel
Westchester Mortgage

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