Want to know how much house you can afford? Although it?s a seemingly simple question the answer can vary from lender to lender. Still, there are some basic and general requirements applied by most lenders.
For example, an article that I recently read posted on money.cnn.com says that the amount of house you can afford to buy is up to 2.5% of your annual income. So, if your household annual income is $80,000.00 you should be able to qualify for an approximate $200,000.00 loan.
And then there?s Washington Mutual, which appears to be a little more liberal in their mortgage loan lending requirements. It lends 3 to 5 times a person?s annual income. So, that $80,000.00 salary can leverage you into a $400,000.00 mortgage loan.
But is it wise to borrow nearly half a million dollars on an $80,000.00 income. You?ll have to decide, but let me suggest that we have such a high number of foreclosures in today?s market because mortgage lenders loaned more than borrowers could afford to pay back. There?I said it!
Housing Expense Ratio & Debt To Income Ratio However, there are some other factors taken into consideration; specifically something called a Housing Expense Ration and a Debt To Income Ratio. Here?s a little bit more about each.
First, you monthly mortgage payment ? including principal, interest, real estate taxes and insurance (PITI) should not be more than 28% of your gross monthly income?before taxes. This is known as your Housing Expense Ratio.
Your total monthly debt obligation should not be more than 36% of your gross income. Total debt includes the mortgage payment, plus other obligations; like car loans, child support, alimony, credit card bills, student loans, condominium association fees, etc. This is known as your Housing Expense Ratio
Dollars and Cents Here?s an example of how it works out. If you earn $50,000.00 you could afford a monthly PITI of $1,167; which is 28% of your income.
And your total monthly debt obligations could not exceed $1,500.00; an amount that represents 36% of your income. Some lenders will lend up to 40%. Want to calculate what monthly mortgage payments will be for a $100,000.00, $300,000.00, or any other amount of our choice? If so, then copy and paste the following link
http://www.bankrate.com/calculators.aspx
into your browser. Once you?re on the site you can fool around with different interest rates and years financed.
Now, when you get real serious about a mortgage and actually want to begin house hunting you should call up a mortgage lender and ask them to pre-qualify you for a loan. Usually, there?s no cost involved and they can do it quickly. They?ll take a cursory look at your credit history and ask you for income and expenses, which will help them calculate how much house you can really afford.
