How much mortgage can I afford?

How much mortgage can I afford?

Denver/Lakewood: You might be asking yourself that question, if you’re looking to buy a home or refinance. Well this week, we are going to answer this question for you this week of how much mortgage can I afford?

Affording and qualifying are two different things. Lenders look at a key number when they look at how much you can qualify for called debt to income ratio.

There’s actually two debt to income ratios. There’s one that looks at just the housing payment- called the front end debt to income ratio. Then there’s a debt to income ratio that’s all of your monthly payments- your mortgage payment and anything that would appear on credit: student loans, credit cards, auto loans, anything else that you’re paying on monthly. All of that combine is your total debt to income ratio or backend debt to income ratio. What this ratio gives us is all those payments compared to your gross monthly income (gross monthly income, being before taxes).

This is why qualifying isn’t necessarily the same thing as affording a mortgage payment. There are some loan programs, for example, FHA, that allow a pretty high debt to income ratio. You can theoretically qualify at a debt to income ratio up to 57% of your gross monthly income. If you think about it, let’s say you’re in the 25% tax bracket, that means that a is qualifying you on your gross income, but you’re only getting 75% of that income if you’re in the 25% tax bracket. That means if you’re at 57% debt to income ratio, that only leaves 18% of your income for all your other bills: food, gas, entertainment, whatever else. It’s something important to keep in mind that qualifying doesn’t necessarily mean affording a mortgage payment.

When you look at how much mortgage you can afford, it’s important that your lender gives you an idea of what your mortgage payment’s going to look like, and especially if you’re out looking at buying a home and you’re out shopping for homes.

It’s important to be conservative and look at an interest rate that’s a little bit higher than what the market is currently because rates may go up while you’re looking for homes.

We are happy to answer more questions about that if you have them or any other mortgage related questions. 303-670-0137 or email at baxterteam@fairwaymc.com