Diane's Diary-ah

Written by: Diane St James
Copyright 2006
http://www.abcmortgage.net

I look at mortgage files every day and often find myself shaking my
head at the mortgage payment I see that borrowers are about to take
on.  These are borrowers that think that as long as they are
officially 'approved'for a mortgage they can afford the payment.
This is often not the case.

As the age of automated underwriting came about in which the figures
from a borrower's loan application gets entered into a program, a
credit report is pulled and the loan decision is determined within
minutes,out went the age of common sense underwriting.

If a given loan indicates a high enough credit score or a certain
amount of equity in the property, often loans with a DTI
(debt to income) level upwards of 60% are automatically approved
by the underwriting systems in place today.

In the good old days when I would underwrite a loan that I had to
make a sound decision on, this loan would be denied because an
alarm would go off in my head that someone making $3000/month
couldn't possibly pay a mortgage payment of $1800/month and still
have money to comfortably live on.  Keep in mind that this
$3000/month figure that is used in qualifying calculations is gross
income, that is, BEFORE taxes are taken out. After taxes are taken
out the actual take home earnings could be $2250/month or less! Do
the math. That only leaves $450/month for food, utilities, and any
other bills.  Could you survive with that little left over? I know
folks whose car payments are more than $450/month!

These are the things that borrowers need to really think hard about. 

Don't get enticed by the beautiful house you just have to have, or
the smiling face of the loan officer who shakes your hand and says
"You are approved for a mortgage up to $ XXX,XXX, no problem!"

So just how much of a mortgage payment is manageable for you?
The best way to think of what would be a comfortable, affordable
payment is to go back to the old school of thinking.

Take all your monthly installment and credit card minimum payments
and get that monthly total. Then take no more than 38% of your
gross monthly income and subtract those debts from that figure.
The remaining figure is the mortgage payment you should be able
to handle without running into trouble within a few months of
getting that higher mortgage.

If after doing those calculations that doesn't leave enough of
a mortgage payment for the house you want, consider a smaller
house to start with or possibly a less expensive area which may
be away from the higher priced homes some but still affordable.

If you are in the market for a new house or your first home,
please keep this article in mind. It may make the difference
between getting a second job just to make ends meet and being
able to sleep soundly at night!

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Diane St. James is a mortgage professional with over 25 years
experience. Her website http://www.abcmortgage.net exists to help
educate people about the mortgage world. She is the author of 2
e-books, and has been quoted in the WALL STREET JOURNAL,
on MSN.com, appeared on national cable new television CNBC,
and was featured on a Cover Story for USA Today newspapers.
She offers live phone advice as well as underwriting services.