Current Mortgage Rates

Thursday, August 21, 2008



Before you venture out and start looking at homes, you should try to get a reasonably good idea of how much home you can afford. This will be based on three primary factors:
  1. How much money you have available for a down payment and for closing costs
  2. The loan amount your lender will approve
  3. How much you can spend on mortgage and interest payments
Your lender will want to know not only how much money you have, but how much you will likely make over the next 30 years. Also, what are your other debts? Do you owe money for college or on credit cards? Do you have any other assets? Things like stocks and mutual funds or real property like a boat or a car are also considered in figuring out how much a bank will lend you.

In general, the lender will want you to come up with at least 20% of the value of your new home for a down payment before they will give you a mortgage. But, there are special financing arrangements for which you probably qualify that will get you into a new home for as little as 3% of the asking price. We'll talk more about mortgages and those special programs later in our home-buying area. The lender will also plug your income numbers into a couple of formulas: the front-end ratio (having to do with your mortgage payments) and the back-end ratio (having to do with your debt). Let's say your gross income is $4,000 a month, and you have $1,000 a month in debt payments.

The rule of thumb is that they'll allow you to pay 29% of your gross income toward your mortgage payment every month. This is known as the front-end ratio. In this example, 29% of $4,000 is just under $1,200 a month -- so, they'll reason, you can put $1,200 toward your mortgage payment. Your debt ratio or back-end ratio, on the other hand, is 1,000/4,000, or 25%. That's not bad. They don't want more than 41% going to your other debt. (These ratios can vary somewhat; the ones given here are good examples).



Another factor to figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it's expressed as a percentage. Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 28 percent of your gross monthly income goes to housing expenses.




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Current Mortgage Rates*

Loan Type
National Average
30-yr. fixed6.62%
30-yr. fixed jumbo7.25%
15-yr. fixed6.00%
15-yr. fixed jumbo6.88%
7/1 ARM6.25%
5/1 ARM6.00%
3/1 ARM5.75%
1-yr. ARM5.62%
1-yr. LIBOR ARM5.50%
10/1 ARM8.00%
*Mortgage Rates Updated: 08/20/2008