Lenders Are Generous When Counting Income for Chicago Real Estate Purchasers

When lenders are determining how much potential borrowers can afford in a mortgage payment on their new Chicago real estate, borrowers are lucky that lenders consider gross income, not the amount that actually comes home. Or are they?
Equifax Real Estate Blog takes up the topic in a recent post by real estate expert Ilyce Glink. Her article, “
How to Think About Debt When Buying a Home,”  talks about the times when the lenders’ total amount of allowable debt – 36 percent of gross income – is almost as much as or even more than a borrower’s take home pay.
The fact is, most Americans bring home a relatively small percentage of what they actually make. With income taxes, health insurance, retirement contributions and numerous other deductions taken long before the money hits the bank account, many bring home only half or even a third of gross income. Mortgage lenders want borrowers to spend no more than 28 percent of gross income on mortgage, insurance and taxes and no more than 36 percent on total debt. But what about borrowers who bring home only 36 percent of their income each pay period? They feel like they’re being approved to borrow way too much money, and they’re probably right.
Glink encourages homebuyers not to take what the mortgage lenders say you can afford at face value, lest you end up with a monthly payment you can’t manage. Instead, she says to consider your actual budget and determine how much you can truly afford spend on your home each month, saving back some for maintenance costs and emergencies expenditures that are likely to come with owning a home.
For homeowners and potential borrowers who want to take control of their finances, the
Equifax Personal Finance Blog publishes numerous stories like this one on real estate, credit, insurance, tax and retirement topics. Even better, readers can ask questions of the experts. It’s worth a visit!