HOW MUCH CAN I BORROW?

  1. Upon talking to a lender you will determine the exact dollar amount you qualify for. The following section will introduce you to the world of finance. The amount you can borrow depends on your ability to repay the mortgage note. Many websites offer online calculators that estimate how much you can borrow to buy a house. You can also make some calculations on your own based on your income, savings, creditworthiness, and other debt obligations.
    • Percent of Income
      • Generally, lenders allocate 28% to 30% of the household monthly income to mortgage payments. The monthly payments will include principal reductions, interest, taxes, and home owners insurance (PITI). In addition, lenders factor your total debt payments for housing plus other debt, including auto loans, credit card debt and student loans. All of which should be no more than 36-38 percent of income.
    • Down Payment
      • The down payment is typically 20 percent of the home’s value. Some lenders lend over 80 percent of a home’s value, in those instances one must pay for private mortgage insurance (PMI). In some cases, for example, if you are a first time home buyer FHA runs a program that has a 3.5% down payment of the home’s value. These programs and regulations change often but please discuss all available options with your lender.
    • Credit Score Effects
      • If your credit score is below 600, you might have trouble borrowing money to buy a house. This is because lenders consider your credit score an indication of how risky lending to you would be. Among those approved for mortgages, interest rates generally are lower for people with higher credit scores. Ask your potential lender for an interest rate quote based on your credit score.
    • Considerations
      • Before making the purchase, consider the long-term implications of buying a house. For example, if you are married and using both of your incomes in the calculation for your mortgage amount, consider whether you could continue to afford the mortgage after having children. The expense of childcare or the reduced income of having one parent stay home with the kids would make it more difficult to afford payments. If you are nearing retirement age, buying a home with a 30-year mortgage might be difficult, because your income will decrease when you retire.