Judge Your Mortgage Affordability

When you think of buying your own house through a mortgage loan then the first question that crosses your mind is ‘How Much Mortgage Can I Afford’. In fact, it is a very important question that you should ask yourself prior to applying for any mortgage loan. If you are not sure of your budget and your mortgage affordability then you may face problem afterwards at the time of repaying the mortgage loan. Moreover, if you are aware of your budget constraint in advance then you can save some of your precious time by not visiting the houses that are out of your reach. But in order to get an accurate answer to the question ‘How Much Mortgage Can I Afford’, you need to be aware of certain factors which affect your mortgage affordability. These factors are discussed below:

Factors that determine how much mortgage you can afford

• The main factor that determines your mortgage affordability is your debt-to-income ratio. By checking your debt-to-income ratio, the mortgage lenders decide how much of mortgage loan you can manage to repay and accordingly they fix the loan amount that they are going to approve. Your debt-to-income ratio actually shows that how much of your income is spent for paying off your debts. So, higher is the debt-to-income ratio, lower are your chances of getting a big mortgage loan with low interest rate.
• In general, the mortgage lenders see a debt-to-income of 36% as the upper limit. If your debt-to-income ratio is higher than 36% then you may not get a mortgage loan of your desired amount or you may have to pay higher interest rate on your mortgage loan. With a very high debt-to-income ratio you may even be denied of a mortgage.
• Under some special mortgage programs like Federal Housing Authority Mortgage Program and Veteran Administration Mortgage Program, you can get a mortgage loan even with a debt-to-income ratio higher than 36%. There are also some private lenders who can offer you a mortgage loan with a high debt-to-income ratio like 45%. But, generally such mortgages carry high rates of interest.
• As the debt-to-income ratio is so much important in determining how much mortgage you can afford, you should put enough effort in lowering the ratio much before you apply for any mortgage.
• Sometimes the mortgage lenders also check that how much of your income is going towards household expenses. They want to see that no more than 28% of your total income is spent under the head of housing expenses.