Deciding how much house you can afford…
How much can you afford
Lenders are careful, but they make qualification decisions based on averages and formulas. They won’t 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.
Historically, banks 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. (In Canada lenders apply similar formulas to determine how much a buyer can afford.
The Gross Debt Service ratio, or GDS, is not to exceed 32 percent of the buyer’s gross monthly income, and the Total Debt Service ratio, or TDS, is not to exceed 40 percent of the buyer’s total debt load.)
As home prices have risen, some lenders have responded by stretching these rations 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.
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.
Below is our Free Mortgage Calculator to see what loan amounts, and monthly payment amounts might be for you. Keep in mind only your lender can give you an exact amount as there are fee’s and points that you may not know about right now, but this should give you a pretty close idea and great place to start!
Contact us today and let us know how we can make your dream a reality. Whether it’s buying your first home, moving up, or selling your home, we know you will be very pleased with the results you will receive from BHF Real Estate and Notary Service ®. Phone:619.384.9269