Before you take the plunge into homeownership, it is important to consider how much home can you afford. When making this decision, it is a good idea to consider the factors that are used by mortgage lenders when determining how much of a loan you can receive.
2. Before you take the plunge into
homeownership, it is important to
consider how much home can you afford.
3. When deciding how much to lend you, lenders
consider three primary factors. These include:
How Do Lenders Determine How
Much You Can Borrow?
Front-End Ratio
Back-End Ratio
Down Payment Percentage
4. Your front-end ratio is a monthly percentage based on
your yearly gross income and the anticipated monthly
payment associated with your loan.
Front-End Ratio
Most lenders do not want this amount to be
more than 28 percent of your gross income
Some lenders will still approve a loan where
this figure is as high as 40 percent
5. Your back-end ratio is the percentage of your gross
income that is needed to cover all of your debts.
Back-End Ratio
Including the anticipated mortgage loan debt as well
as car loans, credit card payments, other loans, etc.
Some lenders will go as high as 45 percent
Most lenders do not want this figure to be more than
36 percent
6. Your down payment percentage refers to the percent
of the total cost of the home that you are able to
make as a down payment.
Down Payment Percentage
Many lenders will allow you to make a purchase
with a significantly lower down payment
A down payment of at least 20 percent is preferred
Many lenders will allow you to make a purchase
with a significantly lower down payment
7. Just because you can get a mortgage loan, it does not
mean that you should get one.
Looking at Your
Personal Situation
You need to consider your personal situation when
deciding how much home can you afford and
whether now is the right time for you to buy
Qualifying for a loan does not mean you are truly
prepared for the financial responsibility
of owning a home