big issue and pressing This is a figure that represents
question for a lot of For the total cost, monthly, of the
Sale By Owner sellers is mortgage payment including
how to determine if a potential principle and interest as well as
buyer can afford to purchase the the monthly cost of property
home for sale. taxes and homeowners insurance.
The second term is Ratio.
(there is a free ebook: 101 Tips
For Selling Your House,for you to This is a number that most banks
download, from a link at the use in order to determine how
bottom of this page). much of a buyer’s monthly gross
income they can afford to spend
This situation is known as on PITI. The most commonly used
pre-qualifying a buyer. At first ratio is twenty eight per cent.
glance, this may seem like a
complicated process and a complex This ratio is determined without
dilemma but in actuality it is considering any other debts such
relatively simple and involves as credit cards or car payments.
crunching a few numbers in some Sometimes this ratio is referred
basic mathematic equations. to as the front-end ratio.
It is important to determine the When other monthly debt is taken
meaning of some terms that are into consideration, a ratio of
involved in this process. thirty six to forty per cent is
acceptable. This is called the
The first term to understand is back end ratio.
the acronym PITI. This stands for
Principle, Interest, Taxes, and The calculations are as follows:
Insurance. the front-end ratio is determined
by dividing the PITI by the gross
monthly income. The back end monthly property tax payment. The
ratio is determined by dividing annual hazard insurance must be
the PITI combined with the debt, divided by twelve in order to
by the gross monthly income. come up with the monthly property
insurance payment.
Four things are needed in order
to determine the PITI. The sales All of these terms and figures
price, the mortgage amount, seem daunting, but once put into
annual taxes, and annual hazard practice, things become easier
insurance. From the sales price and more self-explanatory. This
you must subtract the down is the most complex portion of
payment in order to determine how pre-qualifying your buyer.
much is needed from your bank.
Other requirements include the
The mortgage amount is generally standard credit check and job
the sales price minus the down history check. A good credit
payment. rating as well as at least two
years of consecutive employment
To determine the principle and are usually necessary in order to
interest portion of the payment get the best terms for a mortgage
you must use a mortgage payment and to get the lowest interest
calculator and input the loan rate possible.
amount, the interest rate, and
the term of the loan in years. It is not as difficult as it
Mortgage calculator websites are sounds in order to pre-qualify a
available and can be found buyer. This can usually be
without much difficulty. determined by a simple
conversation where figures are
Annual taxes are divided by discussed. With a small amount of
twelve in order to determine the due diligence, this process can
be much simpler than it sounds be completed.
and a profitable transaction can
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