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The amount of loan for which you
qualify is based on two different calculations. Using what are known as qualification ratios, lenders evaluate your income and long-term
debts to determine a "safe" amount for your mortgage payments. A fairly standard
ratio is 28/33. Certain mortgage plans sometimes use more liberal ratios - for example,
the FHA currently uses 29/41.
Here's how it works: With a 28/33
ratio, you'd be allowed to spend up to 28% of your gross monthly income for mortgage
payments. The lender will then run a different calculation. This one is your loan payment
and debt payments combined, which may not exceed 33% of your gross monthly income. To
calculate exactly how much you may borrow, you also need an estimate of current interest
rates.
For Example: Suppose you had $1,000 a
month for mortgage payment; at 7% that would let you borrow about $160,000 on a 30-year
loan. At 6% the loan amount would be nearly $175,000. If your rate were 8%, the loan
amount would be a bit less than $150,000.
As part of this calculation, you also need to estimate and include the
property taxes, homeowner’s insurance, and Homeowner Association fees (if applicable)
you might need to pay, which are considered part of your monthly expense.
Begin the home buying process by calling us to determine how much you can afford, or
let us suggest a mortgage
lender and they can analyze it for you.
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