How Much Can I Afford?

How much mortgage money can I qualify to borrow?

This is typically the number one question mortgage professionals are asked by new clients.

Of critical importance when considering mortgage financing: There is sometimes a difference between what a client ***can*** borrow and what they ***should*** borrow.

In other words, what makes for a comfortable long-term mortgage payment?

The Quick Answer:

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined.

Sample Mortgage Scenario:

Let’s use a gross monthly income of $3000 and a qualifying factor of 30% Debt-to-Income Ratio:

$3000 multiplied by .3 (30%) = $900 max monthly mortgage payment

This means that your mortgage payment (Principal, Interest, Taxes, Hazard Insurance) cannot exceed $900 a month.

“Ballparking” a Qualifying Loan Amount:

Simple step:  We use a safe average of $7 per month in payment for every $1000 in purchase price so…

Step 1)  $900 a month divided by $7 = $128.50

Step 2) $128.50 multiplied by 1000 = $128,500 loan amount.

Remember, these are average ratios and guidelines set by most lenders for common mortgage programs.

Keep in mind, while most consumer debts are listed on a credit report, there are some additional monthly liabilities that may contribute to the overall qualifying percentages as well.

Regardless of how your personal income and credit scenarios factor in, it is important to consider your overall budget when trying to determine how much of a mortgage you should qualify for.

Other items to consider in your monthly budget:

1. Confirm all debts are taken into account
2. Any private notes or family loans
3. Short-term expenses – medical, auto repairs, travel, emergencies
4. Plan on additional expenses for the home such as water, electric, maintenance, etc…
5. Keep a cushion for savings and financial planning

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January 31, 2010 by · Leave a Comment

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About Lester

In 1973, I graduated high school and started college. In 1977, I met and married my wife Deborah of 40 years, put on a suit and tie, and went to work for Prudential Insurance Company. In 1979, my wife was offered a great job as an advertising executive for a San Jose television station, so we moved from the Monterey Bay area to San Jose, CA. I needed a new job in San Jose and I didn’t really want to start from scratch with a new insurance office. While going to college, I had managed a Travelodge, and it was that management experience that landed my new job and started my career in real estate as a property manager. In 1980, I completed my first certification course with the National Apartment Management Accreditation Board (NAA), and in 1983, I earned my Certified Apartment Manager (CAM) designation which I keep current today. In 1984, my daughter Pearl was born, and in 1987, my son Max was born. When I was managing rental properties, many of my tenants wanted to become homeowners, so in 1988, I got my real estate sales license with the California Department of Real Estate to help them with that goal. As a new Realtor, I found that obtaining financing is the first and most important step to shopping for a home, so in 1989, I completed my first of many programs in real estate finance and loan officer training. In 2000, I stopped doing property management and real estate sales altogether, to concentrate on mortgage loan origination exclusively with Coast Capital Mortgage. In 2004, I moved from Coast Capital Mortgage to join First Priority Financial. In 2014, First Priority Financial changed its business model from mortgage brokerage and banking to just mortgage banking. To better serve my clients and stay a competitive mortgage broker, I joined C2 Financial Corporation. How many people can truly say that they love the company that they work for? I can! ◾C2 Financial Corporation is a mortgage brokerage and a banker. ◾They are A rated and accredited by the Better Business Bureau. ◾Members of National Association of Mortgage Brokers ◾FHA and VA approved. ◾Managed by principals with over 62 years experience in the mortgage industry. ◾Partners with the largest banks in the U.S. ◾One of Scotsman’s Guide Top Mortgage Originators of 2012 and 2013. I’m a lucky guy that loves my job and the people that I work with. Every day borrowers entrust me with one of the most important financial decisions of their life and I don’t take that responsibility lightly. I do what is best for my clients and know that by doing so I’m not only doing what is morally and ethically right, this belief system will result in my borrowers referring me additional clients, which is the best long-term business model. So far so good!

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