How to Know How Much Mortgage You Can Qualify For?
Before you start looking for your dream home, you must have an idea of what you can afford to spend, This means knowing how large of a mortgage you qualify for, allowing you to look at homes in your price range. You could be pre-approved by a bank or other lender, or you can figure this out yourself and continue to look at homes without committing to a lender until you are ready to buy.
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Instructions
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1
Write down all of your monthly bills. This is your debt liability. Exclude your current rent or mortgage payment.
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2
Compile the monthly gross income for each person who will be listed on the loan application. Use all nontaxable and taxable income for the month.
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3
Use the highest percentage of the formula that banks use. They use between 28 percent and 44 percent of your monthly income to determine how much you will qualify for as a mortgage. For instance, if your income is $3,500 per month, the bank would not allow you to pay more than $1,540 in monthly debt (.44 x 3,500).
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4
Take your monthly debt, excluding your current housing payment, and subtract it from your allowed monthly debt. For instance, if your monthly debt is $600 and you used the formula in Step 3, you could afford to pay $940 a month for a house payment, insurance and escrow for property taxes (1,540 -- 600 = 940).
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For additional assistance, use the online mortgage calculator link in the References section.
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Tips & Warnings
Even if you can afford a higher amount for a mortgage, you should find an amount that you feel comfortable with.
