Mortgage Calculator: What's Your Home Loan Borrowing Power?
Before determining how much you can borrow for a mortgage, focus first on how much house you can actually afford. Lenders often approve loans larger than what's financially comfortable for borrowers.
Key Factors Affecting Your Mortgage Amount:
• Debt-to-Income Ratio (DTI): Lenders typically want total debts under 36% of monthly income • Down Payment: Larger down payments improve loan terms and reduce monthly payments • Credit Score: Most lenders require minimum 620, affects interest rates • Loan-to-Value Ratio (LTV): Relationship between loan amount and home value
Important Considerations:
• Follow the 28% Rule: Monthly mortgage payments shouldn't exceed 28% of pre-tax income • Account for Additional Costs:
- Down payment (typically 3-20%)
- Closing costs (2-6% of home price)
- Private Mortgage Insurance (PMI) if down payment is less than 20%
- Property taxes and insurance
- Home maintenance and repairs
Mortgage Term Options:
• 30-Year Fixed: Lower monthly payments but more total interest • 15-Year Fixed: Higher monthly payments but less total interest • Adjustable-Rate (ARM): Lower initial rate, changes after fixed period
How to Qualify for Better Terms:
- Increase down payment amount
- Reduce existing debt
- Improve credit score
- Consider a starter home instead of forever home
- Compare offers from multiple lenders
Remember: Focus on what's affordable for your budget rather than the maximum amount you can borrow. Consider all homeownership costs when determining your comfortable price range.