How much can you borrow when buying a home

November 29, 2011 — The amount you can borrow will depend on your income and current debts as well as the value of the home you’re purchasing, the amount of your down payment and the current mortgage rates.

If you haven’t yet selected the home you’d like to purchase, most lenders will offer you a free estimate of the maximum housing payment you may be able to afford. Or use the worksheet below to get an idea now.

Generally, your monthly mortgage payment for principal, interest, taxes and insurance should not exceed 28 percent of your monthly pre-tax income. Monthly payments on other debts, such as car loans, school loans or credit card payments, should not exceed an additional 5 to 8 percent of your monthly income.

These percentages can be higher or lower depending on the type of loan you apply for, but they’re a good place to start estimating.

Loan Estimating Worksheet

This worksheet uses 28 percent and 36 percent figures to qualify, which are common. However, these percentages can be higher or lower depending on the type of loan you select. A loan officer can explain the different options available.

Monthly Income Before Taxes

Borrower – $

Co-Borrower  – $

Other – $

Total Monthly Income =  $

X            .28

= Maximum Housing Payment $

Or

Total Monthly Income =   $

X            .36

Maximum Payment for All Debts   = $

Now calculate your monthly debts. Generally, lenders will not consider debts that will be paid in full shortly.

Current Monthly Debts

Auto Loans – $

Personal Loans  – $

School Loans – $

Minimum Credit Card Payments – $

Other Current Monthly Debts – $

Maximum Housing Payment From Above  – $

*If this number exceeds that shown for Maximum Payment for All Debts, figure the amount by which it exceeds and subtract it from the Maximum Housing payment. The new figure is your maximum monthly housing payment estimate.

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