How Much Can You Afford?

Factors that determine how much mortgage you can borrow

If you dream of buying your own home and do not have the adequate finances to do so, then you can take out a mortgage. This is a loan taken to pay for a house and for the land that it is on. The house and the land purchased with this loan are to be treated as collateral on the loan. This means that if you default on the monthly payments, your house and land can be taken away by the lender to cover the payments that you have missed. So now you must be wondering "mortgage how much can I borrow?" .The answer to this question can only be found if you consider the three main factors that influence how much you can borrow.

The three factors that decide on mortgage how much can you borrow, are as follows.

1. Your monthly income: Generally lenders say that your housing expenses should not exceed 25% to 28 % of your gross monthly income. These housing expenses will include all your interest payments, monthly mortgage principle, homeowners insurance and property taxes. In case you are applying for FHA (Federal Housing Administration) loans, then your housing expenses should not be greater than 29% of your gross monthly income. You should know that you can count as your income all your overtimes, bonuses, commissions. Your net income if you are self-employed, your income from programs that assist the public and workman's compensation are all to be included as your income. You are also to include incomes from dividends, rents, trusts, partnerships and professional corporations.

2. Total amount of your debts: Your lenders will also take into consideration your debts. Usually all lenders say that your housing expenses along with your long term debts is not to be more than 33% to 36% of your gross monthly income. You should also know that in case of Federal housing Administration loan your housing expenses is not to exceed 41% of your gross monthly income. It is best for you to pay off as much debt as possible, before you apply for a mortgage.

3. How much you will pay as down payment: It is usually expected by the lenders that you will have money enough to pay at least 20 % of the price of the house you are purchasing. This amount that you pay is called the down payment. A few sources that you can consider for drawing money for your down payment are your stocks and bonds, your savings funds, your employee savings plans, your retirement savings, etc.

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