How Much Can I Borrow for a Home?
Here Are a Couple Ways That Lenders Determine How Much You Can Borrow:
1. Percentage of Gross Monthly Income
Many lenders follow the rule that your monthly mortgage payment should never exceed 28% of your gross monthly income.This will ensure that you are not stretched too far with your mortgage payments and you will be more likely to be able to pay them off.
Remember: your gross monthly income (i.e. pre: taxes, social security, child support, etc.)
2. Debt to Income Ratio
Another formula that mortgage lenders use is the “Debt to Income” ratio, which refers to the percentage of your gross monthly income that is taken up by debts. This takes into account any other debts, such as credit cards and loans. Many lenders say that the total of your debts shouldn’t exceed 36% of your gross monthly income.
The lender will look at all of the different types of debt you have and how well you have paid your bills over the years.
Of course, there are many other factors that need to be considered, such as the term length of the loan, the size of your down payment and the interest rate.
Remember: that when factoring in your income, you usually have to have a stable job for at least two years in a row to be able to count your income. If you want to increase your chances, you could consider paying down your debts or buying with a co-borrower, which will improve your debt to income ratio.
From First Heritage Mortgage- Shawn Potter
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