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Pamela Berns, Sr. Mortgage Consultant

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How much home can you afford?

Some factors used to determine that amount:

  • Credit Score/Rating – The higher your credit score, the more likely you’ll qualify for a lower interest rate.
  • Interest Rate –The lower your interest rate, the more money you can borrow at the same monthly loan payment amount.
  • Down Payment – The more money you can pay up front, the less your loan amount will be. Additionally, if your down payment is 20% or more of the property value, you won’t need to pay mortgage insurance, resulting in lower monthly mortgage-related expenses.
  • Debt-To-Income Ratios – There are two debt-to-income ratios used to determine your maximum loan amount
  1. Housing ratio (or front end ratio) is the percentage of your gross monthly income that is dedicated to paying your monthly mortgage-related expenses (principal and interest, property taxes, homeowner’s insurance, mortgage insurance). Generally this ratio should be 28% or lower.
  2. Total debt ratio (or back end ratio) determines the percentage of your gross monthly income that is used to pay your combined monthly debts (mortgage related expenses, credit cards, car loans, student loans, child support, etc.). Generally this ratio should be 36% or lower.

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