How Much Can You Borrow to Buy a Home?
Posted on: 26 May 2020
One of the first things you should consider when buying a home is how much you can afford. To do this, it is helpful to research how lenders approve mortgages and determine the amounts they offer to borrowers. When you apply for a mortgage loan, what does a lender do to determine the amount you can borrow? If you can learn the answer to this, you will understand how much you can borrow to buy a home. Here are several details about how this works.
Lenders View Your Credit
First, lenders view your credit to see if you are creditworthy for a loan. If your credit is not great, you might qualify for a loan, but the lender might lend you a lower amount. You may need a larger down payment too. You will always have more options with mortgage loans if you have excellent credit. Do you know where you stand with your credit? If not, look it up. You can use a variety of sites to find out what your score is, and it is helpful to do this before applying for a loan.
Your Income and Debts
The second thing a lender does when evaluating how much to lend a person is to assess their income and debts. Lenders often use ratios during this step. One ratio is adding up your gross monthly income and multiplying it by 28%. Most lenders only issue loans for 28% or less of a person's monthly gross income. For example, if your income for the month is $4,000, you could afford to pay $1,120 for your monthly mortgage payment.
Your lender may also take this ratio a step further by adding up all your debt. When adding up all the debt that you must pay each month and a mortgage payment you can afford, the ratio should equal 36% or less. If you have a lot of debt, a lender might not loan you as much as if you had no debt at all.
The Bottom Line
When your lender finishes calculating these things, they will let you know how much you can borrow. If you feel the amount is too high, buy a lower-priced home. If you can afford the amount the bank offers, choose a house for that price. Always remember, though, that you will need a down payment to get a mortgage loan. Find out how much that will be before going through with the mortgage loan.
Talk to a mortgage company, such as Choice Mortgage, to learn more.Share