Deciding how much house you can afford is a personal decision. Many factors come into play. How much can I borrow?  How much can I put toward my down payment?  What size monthly payment can I afford? 

There are no black and white answers to these questions.  It’s a matter of give and take.  If you plan on a 30 year mortgage, you can probably make a lower down payment (or perhaps no down payment at all) and still manage the monthly payments.  If, on the other hand, you plan on a 15 year mortgage, you’ll probably want to make a larger down payment to keep your monthly payments in line with what you can afford. 

How large a down payment can I make?

Many buyers look at their cash on hand as their only source for their down payment.  This simply is not the case.  One way to fund or partially fund a down payment is by using a gift.   Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home.  

There are also down payment assistance charities that can help you.  And, of course, if you are selling a home, the equity you’ve built up can be applied to your down payment.

But these are not your only options.  We can help you explore all your down payment options, including low down payment and 100% mortgage financing options that might be right for you. 

What size monthly payment can I afford?

When determining what size monthly payment you can afford, you’ll want to consider what other monthly expenses you have.   Tangible expenses such as car payments, day care and utility bills, all play a role in how large a monthly payment you can afford. 

There are also the intangible expenses or lifestyle expenses that you’ll want to consider.  Things such as dining out, travel and when you buy your next car can affect how much you can afford.  Are you willing to curtail or delay some of these expenses in order to afford a larger monthly payment? 

How much can I borrow?

This is a question you’ll want to get answered before you begin your home search.   This is something that we’re here to help you with.  Our mortgage calculators will help you see how your down payment, monthly payment and the amount you borrow are all interrelated. 

We can answer any questions you may have about the mortgage process.  But the best way we can help is by getting you pre-qualified for a mortgage loan.  To get started, simply complete the form below to let us know a good time to contact you.  We look forward to helping you buy your dream home.

Before you begin to shop for a new home, you should set up a time to meet with me so we can figure out how much you can afford. This will put you in a better position as a buyer. That’s when it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house. 

To get pre-qualified for a loan, I will collect information about your debt, income, and assets. We’ll look at your credit profile and assess goals for a down payment and get an idea of different loan programs that would work for you. I will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.
It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting pre-approved for a loan gives you competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.
To get pre-approved, you will complete a mortgage application and provide me with various information verifying your employment, assets and financial status such as W-2 forms, bank records and credit card statements. We’ll review your mortgage options and submit your application to the lender that best meets your needs. Once the application process is complete you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.
A pre-approval letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and certain other conditions. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.

Many new homebuyers make the mistake of rushing out to buy things to fill their home with as soon as the seller accepts their purchase offer and the lender pre-approves their loan. But there are still a few major hurdles to overcome before the keys are handed out. Here are some things to avoid during the home buying process to assure your transaction goes as smoothly as possible:

 TIPS FOR A SMOOTH LOAN APPROVAL 

Here is a list of helpful tips to ensure an effortless loan process.

These DO’s and DON’Ts will help avoid any delays with your loan approval. 

• DO        continue makeing your mortgage or rent payments
• DO        stay current on ALL existing accounts
• DO        keep working at your current employer
• DO        keep your same insurance company (refinance transactions only)
• DO        continue living at your current residence (if you move let us know)
• DO        continue using your credit as normal
• DO        call us if you have any questions (972-422-9016)

-    DON’T        make a major purchase (ex. car, boat, furniture, jewelry, etc)

-    DON’T        apply for new credit (even if you seem “pre-approved)

-    DON’T        open a new credit card

-    DON’T        transfer any balances from one account to another

-    DON’T        pay off any charge offs or collections without discussion with us first

-    DON’T        buy any furniture on credit (we know this is already listed but it’s important!)

-    DON’T        close any credit card accounts

-    DON’T        change bank accounts

-    DON’T        make any strange or large deposits in your accounts (EVEN GIFT FUNDS – call first)

-    DON’T        start any home improvement projects

-    DON’T        finance any electve medical procedures

-    DON’T        pay off any loans or credit cards without discussion with us first

Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit (Not necessarily a hard and fast rule)

There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Understanding the qualifying ratio

Typically conventional loans have a qualifying ratio of 30/40. Usually an FHA loan will allow for a higher debt load, reflected in a higher (35/43) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner’s association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example: 

With a 30/40 qualifying ratio:

• Gross monthly income of $3,500 x .30 = $1,050 can be applied to housing, which includes: (PITI) principle and interest, taxes, all insurance, and HOA if required.          
• Gross monthly income of $3,500 x .40 = $1,400 can be applied to recurring debt plus housing expenses. (That $1,400 must support all recurring debt not including household expenses, such as cable, telephone, and utilities)

With a 35/43 qualifying ratio:

• Gross monthly income of $3,500 x .35 = $1,225 can be applied to housing, which includes: (PITI) principle and interest, taxes, all insurance, and HOA if required.
• Gross monthly income of $3,500 x .45 = $1,575 can be applied to recurring debt plus housing expenses. (That $1,575 must support all recurring debt not including household expenses, such as cable, telephone, and utilities)

Remember these are simply guidelines (There are exceptions to most rules)

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford.  We look forward to helping you buy your dream home.