Mortgage How Much Can I Borrow Affordability
From LoveToKnow Mortgage
Plenty of questions may go through your mind when first considering obtaining a mortgage; "How much can I borrow, affordability?" and other questions are excellent issues to examine before applying for a loan to buy a home.
Homeowner Expenses
A lot of people figure that finding a mortgage comparable to the amount they already pay in rent means that the affordability of the mortgage will be no problem. It is important to remember, however, that the mortgage payment isn't the only expense that comes with owning a home. Other expenses to consider include:
- Homeowners insurance
- Property taxes
- Repair costs
- Replacement costs for appliances and other items, as necessary
- Landscaping and other upkeep
Renters can usually contact a landlord if something breaks or needs replacing. Homeowners, on the other hand, must dip into their own pockets to pay for the various expenses associated with the upkeep of a home.
When trying to figure out mortgage how much can I borrow affordability you should be sure to take into consideration all the costs associated with owning a home instead of only focusing on the actual mortgage payment.
Budgeting
To figure out how much money you can afford to spend each month on a mortgage, write out a monthly budget to compare your monetary obligations. How much money do you have left over at the end of the month? If you are already stretching your finances to the limit then you may find that owning a home pushes you over the edge into real financial problems.
If your budget reveals that you have very little money that isn't already obligated to debts or recurring expenses, consider one of these options:
- Find ways to drastically cut your expenses.
- Find ways to increase the amount of your income.
- Lower the amount of money you want to obtain for a mortgage.
- Wait to purchase a home until your finances are in better shape.
Do not obtain a mortgage knowing that your finances aren't ready for the task of paying a home loan while maintaining the dwelling. If you miss a rent payment, your landlord gets annoyed and might tack on some late fees. If you miss a mortgage payment, however, your lender may initiate foreclosure proceedings.
Mortgage How Much Can I Borrow Affordability Lenders
Most mortgage lenders offer simple prequalification, which will tell you how much you are eligible to borrow, based on the information you furnish the lender. A prequalification generally does not take into account your credit score, so even if you are prequalified to borrow a certain amount you may not actually be eligible for it based on your credit history.
Consider a prequalification to be a good guideline, but don't accept it as an absolute statement of how much you can afford to borrow.
Debt to Income Ratio
Every mortgage lender has an acceptable debt-to-income ratio. This means that borrowers cannot exceed a certain percentage for income dedicated to paying recurring debt. Figuring out your debt to income ratio is relatively simple:
Debt divided by Income = Debt-to-Income Ratio
For example, if you regularly pay $2000 per month in debt payments and your monthly income is $6000, then your debt-to-income ratio is 33%.
Once you know your debt to income ratio you can begin to get a clearer picture of how much you can comfortably afford for a monthly mortgage loan payment. Use a mortgage calculator to find out how much your monthly payment will be based on the amount of money you borrow.
Remember: Just because a lender accepts a high debt to income ratio doesn’t mean that you will be able to successfully manage the payments. Keep your debt to income ratio as low as possible – 35% is a good ratio to strive for and maintain – and don't allow a lender to talk you into borrowing more than you can realistically afford.
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This page has been accessed 829 times. This page was last modified 19:59, 26 December 2008.
© 2006-2009 LoveToKnow Corp.
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