How Much Can I Borrow For A Mortgage?

Dear Money Guy...

I am so damn sick of renting an apartment! Each month when I give my landlord the rent payment, my blood boils because I will never see that money again. I know that if I had my own home, that money will at least be building up some equity for future use. So my main goal right now is to buy a house.

But I have no idea how much I can borrow for a mortgage. I have rented my entire life (sad, I know), and have no idea how the home buying and mortgage process works. My credit is decent, I make about $50,000 per year, and my other bills come up to about $1000 a month.

My question: how much can I borrow for a mortgage?

Thanks in advance,

- Jason T.

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Jason,

Good to hear that you are thinking about purchasing your own home. Besides the financial benefits that you will get from being a homeowner, the emotional impact can be just a strong. I feel good knowing that my home is MINE.

How much can you borrow for a mortgage? Well, let me make some assumptions first. I am going to assume that you have been employed at the same place for over two years, have a good credit history, and can come up with 20% to put down on a home.

When it comes to determining how much of a mortgage you can borrow, most lenders calculate something called the front end ratio.

The front end ratio is the percentage of your income that will be used for your monthly house payment (principal, interest, escrow, insurance, etc). Most mortgage companies will cap this percentage at 28% of your pre-tax income.

What this means to you?

If your salary is $50,000 gross a year, then that means that you are making $4166.67 per month. By using the front end ratio (28%), you should be able to get a loan whose monthly payment is $1166.67.

Now, how much the total loan size will be will be dependent on the interest rate that you get. So let's say that you get an 30 year loan with an 6.0% interest rate. The total amount of mortgage that you can get is just over $194,000.

Some things to consider: I didn't include property taxes or homeowners insurance into the calculation. So please keep that in mind when determining the max amount you can borrow.

The best way to answer the question "How much can I borrow for a mortgage?" is to fill out a free, no obligation quote with a mortgage company.

Here's one company that can give you an accurate answer :




Once you get the quote back from them, you'll know exactly how much house you can get. A lot of people start looking for homes BEFORE they research how much they can realistically borrow. I wouldn't recommend doing this because generally people find that they can get much less how than they initially thought.

So all that time looking at houses (that they can't even afford) is wasted. Find out how much of a mortgage you can get FIRST, and then go house hunting. If you get a pre-qualification or pre-approval letter from the lender, even better.

Regards,


The Money Guy