When you’re delving into the market in the hopes of finding your dream home, it’s likely you’ll come across the term debt-to-income ratio. This may not seem important at first, but your DTI is the key to determining the amount of money you can put into your home and just how much you should spend on a monthly basis. If you’re curious about what this means for you, here’s how to calculate it and how it can impact your mortgage.
What’s Your DTI Ratio?
One of the best ways to determine whether or not a home is affordable for you is to first calculate your DTI ratio. To get this amount, add up all of your monthly payments including any credit card, loan and mortgage payments, and divide this amount by your gross monthly income. The amount you get is your DTI percentage and this will help to determine how much your monthly payment should be.
What Does Your DTI Mean?
Your DTI percentage helps to determine the amount of house you can afford on a monthly basis, and this is why it can be such a good way to help you find the right home. While a DTI of 25% or less is ideal, a DTI that rises above 43% may be hard to get financing for since there will be little room for error. When it comes to a higher debt load, approval may come down to what your credit history says about your financial health.
The Amount Of Home You Can Afford
It’s easy to be convinced that your dream home is for you, and worth the splurge, but investing in too much home on a consistent basis can lead to future financial difficulties. If you’re set on a home that has a high monthly payment, you may want to hold off until you’ve saved a larger down payment or revamp your budget so that you can make the investment work for you. It may also be worth continuing the housing search so that you have more flexibility to invest in education, travel or other things down the road.
Your DTI ratio may be unfamiliar now, but this can be a great save when it comes to determining how much home you can afford and what will stretch your limits.
Many millennials are expected to enter the housing market in the next year with the interest rates still low. However, while it may be a good time, it does not necessarily mean that it’s the right time for you to make the investment. If you’re currently weighing your options when it comes to home ownership, here are some things to consider before you decide put the money down.
Are You Struggling With Student Debt?
It’s possible to invest in a home when you’re still paying down student debt, but if you’re also struggling with a low-paying job and a high debt load, it may not be the right time to buy. Instead of trying to make ends meet to pay a monthly mortgage payment, it might be a better decision to pay off some of your debt, lower your interest costs and consider investing later on. This will also enable you to afford more home when you decide the time is right to buy.
Do You Have A Down Payment?
It can be a good testament to your financial ability if you want to purchase a home at a young age, but having a down payment is one of the most important things to have on hand when it comes to investing. If you’ve come up with 20% of the purchase price, this will allow you to avoid mortgage loan insurance. If you don’t have this amount, however, or much of anything saved up, you may want to create a budget in order to save up for your down payment.
Are You Ready To Commit?
Many people romanticize the idea of buying a home since it’s something that really belongs to them, but it’s important to be prepared for the monthly mortgage payments, home maintenance and all the other fees and responsibilities associated with home ownership. It’s great if you want to invest, but if you want to travel or explore different job opportunities or even continue your education, an investment commitment may not be the best choice.
It can be a great financial benefit for your future to invest in a home at a young age, but it’s important to ensure you’re ready for the commitment by having your debt paid down and having money saved. If you’re currently getting prepared to invest in a home, contact your trusted real estate professional for more information.
According to the National Association of Home Builders Housing Market Index for April, Builder Confidence dropped three points to an index reading of 68 in April. While any reading over 50 indicates positive builder confidence, home builders said that they continue to face obstacles including higher costs for materials and elevated costs associated with regulatory issues. Builders have repeatedly cited concerns including a lack of buildable lots and labor shortages in past months.
Home Builder Component Readings Fall But Remain in Positive Territory
Component readings of the Housing Market Index include builder confidence in current market conditions for newly built homes, which dropped three points to 73. Builder confidence in market conditions over the next six months fell three points to 75. Home builder confidence in buyer traffic volume for new housing developments dropped one point to an April reading of 52.
Regional Readings for Builder Sentiment Vary
Regional readings for April were included in the three-month rolling average in four U.S. regions. Builder confidence in the Northeastern region fell by two points to 46; The Midwestern region added one point for a builder confidence reading of 68, while the Southern region’s reading was unchanged at 68. The Western region added one point for a three-month reading of 77.
Housing industry groups and analysts watch the NAHB Housing Market Index for indications of future volume in housing starts, but builder confidence and housing starts are not always closely connected. The Commerce Department will release readings for March housing starts and building permits issued on Tuesday.
There are so many ways in which you can green up your home and make it more sustainable these days that many people are considering tankless water heaters. While this can certainly be the right option depending on the space you have and the type of water you use, here are some things to consider before you decide to invest in the switch.
Maximizing Your Space
One of the biggest issues with a traditional water heater is the amount of space it takes up, whether it’s a side closet or a closed-off area in the basement. Fortunately, one of the benefits of tankless water heaters is that they can be wall-mounted almost anywhere in your house so they won’t need their own separate space. The traditional water heater may be bulky and require an area of its own, but your tankless water heater will not have to work around the needs of the rest of the house!
Heating What’s Needed
While a traditional water heater stores water and will be able to supply hot water at a quicker rate, a tankless water heater works more slowly. Because it is heating the water as it’s being used, it’s only using the energy it needs to in order to provide the water required. While this will have a positive impact on your energy costs over time, it can also mean waiting on hot water a little longer than expected. In order to go tankless, you’ll require a minimum water flow amount.
Do You Have Hard Water?
A tankless water heater can be more efficient when it comes to space and energy, but if you have an issue with hard water, the tankless option may not be the way to go. Because a tankless heater essentially warms water within the tank, it is vulnerable to scale build up, which can cut into its overall efficiency. While a traditional water heater does not experience this issue, a tankless water heater working with hard water may end up being less useful due to this build up.
There are a number of benefits associated with a tankless water heater, but it’s important to determine if this option will be truly energy efficient for you before you decide to invest. If you’re currently working on home renovations and are getting prepared to put your home on the market, contact your trusted real estate professionals for more information.
Last week’s economic releases included readings on inflation, core inflation, new jobless claims, and mortgage rates. Consumer sentiment for April was also released.
Inflation Rate Dips in April
Consumer Price Index readings for April indicated that inflation decreased from 0.10 percent growth in March to a negative reading of -0.30 percent reading in April. The Core Consumer Price Index, which does not include volatile food and energy readings, also dipped in April to -0.10 percent from the March reading of +0.20 percent. While negative readings for month=to-month inflation suggests sluggish economic conditions, month-to-month readings can be volatile
It’s possible that sluggish inflation readings could cause the Fed to postpone further interest rate increases. Lenders typically raise consumer interest rates when the Fed raises its target federal funds rate.
Mortgage Rates, New Jobless Claims
Freddie Mac reported lower average mortgage rates last week. Rates for a 30-year fixed rate mortgage averaged 4.08 percent a reading two basis points lower than for the previous week. The average rate for a 15-year fixed rate mortgage was two basis points lower at 3.34 percent; rates for a 5/1 adjustable rate mortgage dropped by one basis point to an average of 3.18 percent Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages. Last week’s mortgage rates were the lowest seen so far in 2017.
Fewer new jobless claims were filed last week with 234,000 new claims filed as compared expectations of 245,000 new claims filed and the previous week’s reading of 235, new claims filed.
Consumer sentiment rose in April to an index reading of 98.0. Analysts expected a reading of 96.0 based on the March reading of 96.9. The University of Michigan said that most consumers are upbeat about current economic conditions.
This week’s scheduled economic news includes the NAHB Housing Market Index, Existing Home Sales, Commerce Department readings on housing starts and building permits issued. Weekly readings for average mortgage rates and new jobless claims will also be released.