Everybody has a dream to own their own house and many have realised this, through a mortgage. Before applying one must check credit mortgage and how much one can afford to pay per month. Usually lenders and banks have a standard formula, which says that a person can afford thrice his gross annual income, as the total mortgage on a house. This may not apply to everybody and you should consider your own level of spending before you apply for a mortgage based on this formula.
Mortgage companies expect to take about 40% of your monthly income as mortgage payments. So if a person is earning $3000 a month the lender will feel he can make a payment of no more than $1200 every month. Again here you have to think whether you can manage all your other expenses in the remaining 60% of your income.
Apart from all these formulas the lenders will mainly base their decisions after studying your credit report and knowing your credit score. The three credit bureaus Experian, TransUnion and Equifax, are the main agencies which record all the financial and credit information for each individual, provided to them from different sources like banks, courts, credit card companies and other companies. Based on this information the bureaus compile a credit report for each individual which will show the payment history, defaults, total amount of loans, court cases and so on. This report will give a thorough picture of the individual's financial status and his creditworthiness. The bureaus will apply certain formulas to the amounts mentioned in the report and come out with one figure which will be the credit score.
All lenders will check credit score before sanctioning any mortgage. If the credit score is high, it means that the person has a high creditworthiness and there is very less risk involved in giving him a mortgage. A high credit score will also bring down the rate of interest and the person's mortgage application will not be rejected.
So you can check your credit score before applying for a mortgage, so that you have a fair idea of what to expect. You can also take steps to improve your credit score, by paying your debts on time and having very little spending on your credit cards. Once you improve your credit score you have a better chance of your mortgage approval at a lower interest rate.