Loan and income ratio

Discussion in 'Buying & Selling Real Estate' started by Rosyrain, Feb 18, 2015.

  1. Rosyrain

    Rosyrain Senior Investor

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    It is my fiance and I and we both have full time incomes. We live in a very expensive area and will probably get a loan for about 400k. It seems like so much money, but that is the asking price for a nice house. I am not even sure if a 30k down payment will be enough.
     
  2. ally79

    ally79 Guest

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    Have you looked at any homes in older neighborhoods that have already been developed? That is how we ended up getting our home. It is still in a really nice area, but it is in an older established neighborhood. We are the youngest people in the neighborhood and everyone else here is an original owner.
     
  3. crimsonghost747

    crimsonghost747 Senior Investor

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    Ouch, that is A LOT of money for a house. 30k downpayment probably won't be enough, but talk to the banks. In some places 10% is minimum, in some places it's more.
     
  4. Rosyrain

    Rosyrain Senior Investor

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    When we initially started looking we did find a couple of homes in older neighborhoods, but the houses needed a lot of work because they were 1980s style homes. I think at this point we just need to not be so picky and realize that we can make some updates once we get moved in.
     
  5. crimsonghost747

    crimsonghost747 Senior Investor

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    It all depends on your income. But yeah 400k for a house.. that's 200k each. With a downpayment of 20k (if you find a bank that will accept only 10%) that's going to leave you with 180k of debt to get rid off. Even at 3% interest rate that would be $5400 per year (or $450 a month) just on interest at the beginning.
     
  6. Gelsemium

    Gelsemium Senior Investor

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    I have a debt for almost 17 years now and I still have 13 years left, so only now the interests are starting to be smaller and I am actually paying what I owe.
     
  7. crimsonghost747

    crimsonghost747 Senior Investor

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    So it's a mortgage where you pay a fixed monthly amount? I guess that is the most common one here too but I also see banks offering mortgages with a X amount + interest payment plan. So for example, you always pay 400 euros + interest each month. This way you know that the amount you owe will be reduced by 400e each month and the total amount paid gets lower and lower as time goes by.
     
  8. Rosyrain

    Rosyrain Senior Investor

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    I suppose that I could go for whatever deal they make me and make sure the mortgage is a little lower than what I currently pay in rent. That way I can pay more each month and pay off the loan sooner. Are prepayment penalties a factor now or is this allowed by most lenders?
     
  9. wander_n_wonder

    wander_n_wonder Guest

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    Ideally, it should just be 1/3 of your income that should be allocated as payment for loans. I do notice that most banks also follow this formula. They will only grant you a loan amount which when broken down into monthly amortizations, would equal about 30-35% of income. It's fair enough because you use 33% for the loan, then allocate the 33% for your other expenses, then ideally 33% for savings. Of course, the ratio between savings and expenses will differ depending on how big the family is. But overall, it won't be difficult to allocate 33% for the loan.

    I know there are some banks which allow up to 40% of income, but normally, this is under the condition that you don't have other existing loans or that your average expense level is below average.
     
  10. shilpa123

    shilpa123 Banned

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    I believe that the loan and income ratio should be quite great and it would be awesome to have such income to help you with the loans. The loans should be always taken care of and paid in the right time.
     

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