Your lender decides what you can borrow, but you decide what you can afford.
Lenders make qualification decisions based on averages and formulas. Historically, they use a ratio called 28/36 to decide how much borrowers could borrow. An approved housing payment couldn’t be more than 28 percent of the buyer’s gross monthly income, and his or her total debt load, including car payments, student loans, and credit card payments, couldn’t be more than 36 percent. As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we urge you to think carefully before stretching your budget quite so much.
Lenders may not understand the nuances of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from furnishings, to landscaping, to repairs. Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.
I’ve worked with dozens of lenders over the years, and I’m happy to let you know who are the lenders that take best care of buyers looking for a home loan.
Contact us for a connection to great local lenders who can help you get pre-approved