Everyone dreams of having their own house but very few can afford it from their own resources. Like others, if you to require funds to purchase your house, consider obtain a home loan. However, you may not be able to borrow the full amount you require. So, when you’re applying for a loan, you may ask yourself,  “Mortgage how much can I borrow? ” . Lenders determine the loan amount you can comfortably repay based on factors like your monthly income, existing debt liabilities, etc., and accordingly offer it to you.

What ratios do lenders assess before offering you a mortgage?

Lenders assess various ratios based on your income, debt obligations, purchase price of property and the down payment you make to determine how much they can offer you. A sound knowledge about these ratios can help you estimate the amount you can borrow. The ratios are:

  1. Debt-to-income ratio: Your gross monthly income before deduction of taxes compared to the monthly debt payments you make (including your new mortgage payment, credit card payments, child support and monthly alimony, and other loan payments) gives the debt-to-income ratio. If this ratio exceeds 36%, you will be denied a conventional home loan.
  2. Housing-to-income ratio: Your gross monthly income prior to tax deduction divided by your new home loan payment (including principal and interest payments, home owners insurance and property taxes) gives the Housing-to-income ratio. Your monthly housing expenses should not exceed 28 % of your gross monthly income if you want to obtain a conventional loan. The lower is your debt-to-income ratio and housing-to-income ratio, the better are your chances of obtaining a larger loan.

Apart from these ratios, your credit score also affects the loan amount you can borrow. The higher is your credit score, the more will be your loan amount.

When you’re applying for a home loan, you can also consider using a “How much can I borrow” calculator to have an idea of the loan amount lenders will offer you. However, you must keep in mind that different lenders will offer you different amounts. So, you must shop around to find a lender who will offer you a loan amount as per your requirement.

Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’, ‘Mobile Home Loan with Bad Credit’, and ’How much mortgage can I borrow?’

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