How Much Mortgage Can I Afford?

Buying a home and getting it financed can be a complex issue if you are not aware of the market trends. The first question that comes to your mind when you want to buy a home is “how much mortgage can I afford”.

To help you determine how much mortgage you can afford, you need to know the factors that lenders use to determine how much you can borrow.

Factors determining how much mortgage you can afford

T

here are several factors that determine how much mortgage you can afford. They are:

1. Your credit score – Your credit score is an important factor in the loan approval process. If it is too low, it will be difficult for you to get a conventional loan. It also affects your interest rate directly.

2. Your housing expense to income ratio – It is generally assumed that your monthly mortgage payment including principal, interest, property taxes and homeowners insurance should not exceed 28% of your gross monthly income.

3. Your debt to income ratio – Your debt obligation is an important deciding factor that lenders use to decide how much you can borrow. Your total debt payments including your mortgages, credit car payments, car payments, child support payments and any other debt obligations that you need to pay on monthly basis should not be more than 36% of your gross monthly income.

4. Determine your down payment – It is one of the most important factors that determine “how much mortgage can I afford”. Most lenders expect a down payment of at least 20%. However, if you are unable to do so, you may be asked to take a Private Mortgage Insurance (PMI). Larger down payment can effectively lower your projected monthly payment.

5. Determine the Closing costs – The total amount of money that you need to purchase a home includes your down payment amount plus your closing costs which equals anywhere between 2-5 % of the total amount borrowed. Make sure that it is affordable for you.

6. Determine the cost of homeowner’s insurance – There are several factors that can affect the cost of homeowner’s insurance. Typically, it is about 1% of your loan amount.

If you follow the factors mentioned above, you won’t be left wondering “how much mortgage can I afford” anymore. The factors would help you determine your repayment capability and will also help you choose the mortgage that is best for you.

How Much Mortgage Can I Afford - Get up to 4 offers at LendingTree.com




Check your FICO credit score & get mortgage relief at myFICO