Cash is King – Upside Down Mortgage Solutions

August 3, 2010

4 Things To Consider When Deciding How Much Mortgage You Can Borrow

Filed under: mortgage — brentlane @ 12:39 pm

Mortgage is that loan which is taken to pay for a house and the land that it is on. The land and the house are treated as collateral on the loan. If you do not make the payments towards the loan, you may lose your house and land. Thus, deciding how much you can borrow and afford to pay back is very important.

If you are planning on buying your dream home and are planning to take a home loan/mortgage, you must have often wondered “how much can I borrow for a mortgage”. To get an answer to that, you have to consider various factors. Some of the factors are as follows.

1. Credit score: To find out how much mortgage you can afford, find out your credit score first. Your credit score affects the interest rate; this will directly affect the mortgage payment. It is better to find out from a few lenders what interest rates they are offering. This should help you determine how much mortgage you can afford.

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2. Down-payment: The amount of money that you have saved and are willing to pay towards the down payment, also affects how much mortgage you can afford. Earlier it was very difficult to get a mortgage for more than 80% of the price of the house you are purchasing. That is, 20% of the price of the house had to be paid by you, as down payment.nowadays, mortgages are given even with 3% of down payment.Thus, it is important for you to find out how much down Payment you will be able to make.

3. Monthly income: Your income is an important determinant that affects how much mortgage you get. Most lenders say that housing expenses are not to exceed 25% to 28% of your gross monthly income. Your income in this case will include, not only your income from your steady employment but also overtime, bonus, income from self employment, interest and dividend incomes, workman’s compensation etc. House expenses comprise of monthly mortgage principal, property taxes and your home insurance. The house expenses should not go beyond 29% of your gross income.

4. Debts: How much debt you have, is also considered by lenders before they give you a home loan. It is better to pay off as much of your debt as possible before applying for a mortgage. All debts such as real estate loans, bank loans, auto loans, alimony, and child support, come under consideration. Your housing expenses and your long term debts should not be more than 36% of your gross income.

Considering these factors you can have a fair idea of how much monthly mortgage payment you can afford. This helps answer the question “how much can I borrow for a mortgage”.


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