Remodeling your home is a great way to potentially increase its value and get the home you have always wanted. From updating the kitchen, finishing the basement, and opening up the living room, remodels Up Next: Home Repair: Hire A Professional Or DIY? When it comes to financing your home remodel, you may find yourself […]
What is Disposable Income?
When making a big purchase decision, such as buying a home, it’s better to have more disposable income, the amount of money that you have for spending and saving after taxes and other expenses have been paid, than less. Many statistical measures and economic indicators derive from it, such as discretionary income and personal savings rates. These figures can determine whether or not you will be approved for a mortgage loan on your home.
Disposable Income & Applying for a Mortgage
Among these statistics, your debt-to-income ratio is one of the most critical ones regarding disposable income when you are applying for a mortgage. It is the main indicator to lenders of how dependable you are when it comes to making payments.
The lower your ratio, the better for lenders, and the more likely you are to get approved on a loan. A low ratio shows lenders that you are better at managing monthly payments and would be a reliable borrower that wouldn’t create any risk. Conversely, a high debt-to-income ratio conveys that you don’t have any disposable income and are unable to take on any additional debt, such as a mortgage, making you ineligible for a loan.
Disposable Income & Home Costs
Even though you may qualify for a mortgage, it’s important to remember there are costs beyond the mortgage, since keeping up with your home can be a major expense—from new appliances to a new roof. Sometimes people become house poor, meaning they only budget for the costs of their home and not much else like putting money into savings or luxury goods. Budgeting responsibly and not purchasing more house than you can afford can leave you with disposable income to use as you will.
Some people can handle the stress of living paycheck to paycheck, but nevertheless, maintaining financial stability before you purchase a home is key. Without a significant disposable income, it can affect events from the acceptance of your mortgage loan to your lifestyle after you purchase your home. Remember to consider all of the other costs there are before you become a homeowner and how crucial it will be to have a means of disposable income.