How much home loan can I afford?

You may have heard that you can afford about two and a half times your annual gross income. Like most rules of thumb, that is a helpful shortcut, but it does not take into account a number of factors that lenders use to help determine your borrowing capacity. The easiest way to get a good estimate of how much you can afford to borrow is to talk with a mortgage loan counselor. They will ask lots of questions about your personal finances, determine what your monthly income is and compare that with your monthly financial obligations. Then they can calculate the maximum amount you would qualify for under a fixed rate loan program. In addition, they may suggest other types of loans that might allow you to borrow more dollars. At this stage, I recommend that you stick to a thirty year fixed rate, and that you ask the lender for a written "good faith estimate" of amount, rate and closing costs for the particular loan they recommend. This is called a loan "pre-qualification" and should cost you nothing.

 

Next >