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When you want to buy new clothes, you simply go to the store, make your selection and pay – cash or credit. Buying a new home, because of the price tag, is a lot different. Few people have the ability to go shopping, choose a house and pay cash.

Rather, most people pay a cash down payment on their new home and finance the remainder of the purchase price with a mortgage loan. A mortgage requires you to pledge your home as the lender’s security for repayment of your loan.

Since financing is a key issue in most sales contracts, one of the first things you should do is to figure out how much house you can afford – how large of a mortgage loan you qualify for. Lenders use certain guidelines to determine the mortgage amount they will lend you. The two guidelines used are housing expenses and long-term debt.

Lenders generally say that housing expenses (including mortgage payments, insurance, taxes and special assessments) should not exceed 25 percent to 28 percent of your gross monthly income. Long-term debt is usually defined as monthly expenses extending more than 10 months into the future and should not exceed 33 percent to 36 percent of your gross monthly income. These numbers may vary according to loan type, credit and downpayment. Many loans today allow up to 33 percent for the housing to income ratio and 38% for the total debt to income ratio.

A wide selection of mortgages is available to you in the marketplace. Your challenge is to select the loan terms that are most favorable to you.



Home Buyers Guide
Affordability Guide
Mortgage Calculator

Finance Guide Links
Overview Page
What is a Mortgage Loan?
Types of Mortgage Loans
Shopping for Mortgage
Applying for a Loan
After Applying



Published by the Wisconsin Homeowners Alliance, 2018      |     Privacy Policy