Are you thinking of buying a house in the state of Alabama? First off, you need to determine how much of a house you can actually afford to buy. You should start out by analyzing your debt to income ratio. This is a guideline used by lenders to determine what the maximum mortgage amount will be for an individual. Quite simply, it is the percentage of your monthly income before taxes that is used to pay off your debts each month. Two separate calculations – a front ratio and a back ratio – are used. They are generally written like this: 33/38.
The front ratio represents the part of your monthly income that is used to pay off the costs of housing. These costs include homeowners association fees, interest, taxes, principal, insurance, and mortgage insurance.
The back ratio represents these same values, plus your monthly consumer debt. This includes car payments, installment loans, credit card debt, and other such expenses. (Car and life insurance are exempt from these calculations.)
33/38 is a common guideline for this type of ratio. The costs of housing of a borrower consume thirty three percent of that individual’s income each month. With the addition of that individual’s consumer debt each month, they should not have to spend more than thirty eight percent of their income each month on meeting those obligations.
No need to worry, however – these guidelines are flexible. But the smaller down payment you make on your new home in Alabama, then the more rigid the guidelines will become. The guidelines will also be more rigid if you only have marginal credit. The guidelines become less rigid the better your credit and the larger your down payment. Guidelines will vary from loan program to loan program. According to FHA guidelines, a 29/41 ratio is considered acceptable. VA guidelines do not have a front ration; they do have a back ratio, however, which is also forty one.
If you are considering buying a house in Alabama, keep in mind that you need to do a lot more than just get the money together. You will also have to verify where the money comes from, unless you plan on taking out a “no asset verification” loan. Otherwise, lenders will want to see documentation verifying your down payment. This protects you and the lender against fraud, while also determining your qualification as a borrower. In this sense, asset verification can be viewed as an underwriting tool that is to your benefit.
The best form of asset verification is providing some sort of documented assurance that the funds are coming directly out of your own personal savings. This makes the lender a lot more confident that you are a strong borrower. A strong history of savings qualifies you as a stable borrower.
Providing documentation that you have assets in addition to what is needed to make the down payment will also strengthen your case. Whatever the case may be, make sure you provide a strong paper trail for all the funds you will be using to purchase your new home in the state of Alabama.