How Much of A Mortgage Can You Afford?
The mortgage approval process will involve a home buyer’s due diligence when it comes to calculating how much mortgage they can afford. Mortgage affordability will depend on many different factors that lenders use to determine if and how much they can lend to you.
Buying a home with a mortgage is usually a costly investment, especially for first-time homebuyers. This could be the biggest purchase of your life, so figuring out mortgage affordability is a fundamental aspect of the homebuying process.
How much mortgage can you actually afford? Figuring how much you can afford will depend on many different variables.
Mortgage Affordability Calculator
When you are looking to buy a home, the first step should be to figure out how much you can actually afford. A mortgage affordability calculator will take these determining factors and will tell you your affordability.
To use a calculator like this, you will need to put in your income and co-applicants income if applicable. You will then be required to include income from every source, from rental earnings to investment profits and alimony. You will also need to input your debt payment and living expenses.
The calculator will use these numbers to calculate just how much mortgage you can afford. Changing the mortgage rates and amortization period will let you see the effect on your mortgage affordability and monthly payments.
Mortgage Affordability Estimation
It is recommended that your monthly income and expected expenses should come from a realistic perspective. You should also leave a bit of wiggle room for any unexpected costs or emergencies. Financial advisors will generally recommend following the 28/36% rule when you create your budget. This rule means not spending more than 28 percent of your total income on housing expenses and 36 percent on your debts. This time-tested rule should form the foundation for how much you can afford monthly on a mortgage.
Factors Which Determine Your Mortgage Affordability
It’s true that different mortgage lenders use different criteria in order to determine mortgage affordability. Below you will find some common factors that they may use to determine how much mortgage you can afford.
Gross Income Or Monthly Income
Your gross income is your base salary plus bonus income. It can also include part-time earnings and social security benefits.
Front End Ratio And Back End Ratio
The front-end ratio is also known as the mortgage to income ratio. It is the percentage of one’s annual gross income deductible to pay the mortgage each month. The back-end ratio is the debt to income ratio, which calculates the gross income percentage required to cover the debts.
Credit Profiles
Your current credit score and the debt owed will influence the lender’s perspective to the borrower. Your credit will determine how much mortgage you can borrow.
Cash Reserve
This is the amount of money that you currently have to make a down payment as well as pay for any closing cost.
