How Much Can I Borrow for a Mortgage?
On February 16, 2025 By newsroom Topic: Buying A House
Key Factors in Determining Your Borrowing Power
- Focus on Affordability
- Lenders may approve you for more than you can comfortably afford.
- Use the 28% rule: mortgage payments shouldn't exceed 28% of your pre-tax income.
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Factor in homeownership costs: property taxes, insurance, maintenance, and PMI if your down payment is under 20%.
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Mortgage Terms Matter
- 30-Year Fixed: Lower monthly payments but higher total interest.
- 15-Year Fixed: Higher payments but saves on long-term interest.
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Adjustable-Rate Mortgages (ARMs): Lower initial rate, good for short-term stays.
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Down Payment and Closing Costs
- Aim for 20% down to avoid PMI.
- Budget for closing costs (2%-6% of the home price).
What Affects the Loan Amount You Can Get?
- Debt-to-Income (DTI) Ratio
- Lenders typically prefer total debts to be less than 36% of your monthly income.
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Use a DTI calculator to check where you stand.
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Loan-to-Value (LTV) Ratio
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Based on your down payment; a larger down payment means a lower LTV and better loan terms.
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Credit Score
- Minimum score of 620 for most lenders.
- Higher scores improve loan pricing and approval odds.
Tips to Borrow More
- Increase Your Down Payment
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A larger upfront payment reduces risk for lenders.
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Pay Down Existing Debt
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Reduces your DTI and may boost your credit score.
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Adjust Home Priorities
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Consider a starter home or smaller property to fit your budget.
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Compare Lenders
- Interest rates and loan amounts can vary widely. Shop around for the best deal.
How to Estimate Borrowing Power
- Use online calculators.
- Include all expenses: monthly payments, insurance, taxes, and maintenance.
- Test scenarios to find a realistic budget.
Remember: Borrowing limits aren’t just about what lenders approve but what fits your financial goals and lifestyle!
