The greatest amount of money that a borrower is qualified to borrow.
Determining how much you can afford to borrow for a house is one of the most important steps in the buying process. When it comes to mortgages, there is not a formula set in stone for how much you should spend on a home. Some experts will tell you that you shouldn’t spend more than two and half times your total yearly income. Others will say that no more than thirty-five percent of your total monthly income should be spent on your living expenses, including utilities.
Lenders usually look to see that no more than 28 percent of your total income is needed for mortgage PITI (principal, interest, taxes and insurance) and that no more than 36 percent of your total income is needed to pay total debt, including your credit cards. These figures can help lenders determine your maximum loan amount.
Before you make an offer on a home, you might find it is a good idea to go ahead and get preapproved for a mortgage. That way, you don’t have to worry about whether your offer will be accepted or whether you will be turned down for a loan.
When you get preapproved, your lender will take into consideration your entire financial picture and crunch some numbers. Your lender will then present you with a maximum loan amount. This will help narrow down your home search by giving you a price range to look at for homes.
Remember, you don’t have to spend up to your maximum loanamount. Instead, you can choose to spend less and free up more money for other purposes. It is important that you set a budget for yourself and determine what you can afford in loan and housing expenses and not just go by what your lender says you can afford. If you overextend yourself, you could find yourself defaulting on your loan and losing your home.
July 14, 2006
