Home Loans: How Much House Can You Afford?

It is most people's dream to own your home. First you will need to determine if you are financially ready to purchase a home or upgrade to a more expensive home. There are many things to consider when it comes to having a mortgage, because this financial obligation will most likely be with you for the next 30 years. The last thing you need for 30 years is a struggle, so you will need to make sure that your house payment fits comfortably into your monthly budget.

What will be your ability to pay your mortgage? The bank is going to look into your earning potential. How much do you expect to earn for the nest 30 years. The bank is also going to take a look at your credit history. They are going to want to know how many credit cards you have and what percentage of that credit has a balance. The bank is also going to consider whether you make on-time payments or if you have slow payments. Another thing that they are going to consider is if you have other property. Are you making a payment on a car, boat or even another home?

Some lenders are going to ask for as much as 20% down payment, but it is becoming increasingly more common to see lenders that will extend mortgages to applicants for no money down. Keep in mind the less of a down payment you have the higher your monthly mortgage payment will be.

If you have a monthly gross income of $4,000 a month and your monthly debt is $1,000, the general rule is that the mortgage lender will allow you to use 29% of gross income towards your mortgage payment each month. With this being said, the lender will allow you to have a mortgage that has a payment of $1160 per month.

Another consideration by your lender is your debt to income ratio. With a gross income of $4000 and debt of $1000 each month, your debt to income ration is 25%, which is pretty good by today's standards. Most lenders will allow you as much as 41%. Anything higher than 41% and you may struggle with being able to make your mortgage payment each month.

Owning you own home can be rewarding, but on the other hand it is a big responsibility-financially and otherwise. Being financially prepared for a home loan will make the experience of owning a home less stressful. Making your payments on time and keeping your credit healthy are two of the most important factors when it comes to purchasing a home.