How Much Home Can I Afford?
Instead of asking "How much home can I afford?" Check out
How much home do I qualify for?
to calculate what amount of mortgage you qualify for under the Federal Housing Administration's
guidlines.
I know this can be a confusing topic. I think the reason is that the lenders use mathematical
formulas based on their lending guidelines to determine how much they will lend you.
The mortgage brokers are really answering, "How much home can I qualify for?"
It almost sounds like the same question, but a simple mathematical formula can't tell you how much home can I afford.
See the difference?
What you can afford, and what someone will loan you are two totally different subjects. Your lender or mortgage broker is probably calculating the Federal Housing Administration's debt ratio to determine a maximum loan amount. Click this link to find out how much home can I qualify for based on the FHA guidelines. Your lender is using this formula (or one very similar to it) to calculating the maximum amount that you can qualify for.
Why Provide a Maximum Loan Amount?
You want to buy the nicest home you can, right? Well it is also in the lenders best interest for you to get the largest loan possible. The loan origination person you are dealing with gets a commission based on the loan amount. You might think that your lender doesn't want to close a loan that you won't be able to afford, but in reality the company making the loan for you is usually not the same company that will end up owning your debt. Most loans are sold within the first few months of the loan origination to another lending institution. There is little risk of default within the first few months.A Note About Mortgage Brokers
I have used strong words here because I want to be sure that you aren't shy about asking tough questions to your mortgage broker. Make sure you are in the right product and not in over your head.BUT... please don't assume that all mortgage brokers are trying to take advantage of you. There are bad apples in every industry so just protect yourself with information that you are learning right here on this website.
Even if I thought I could afford the $1,700 per month payment what about other cost increases?
- Will my monthly utility bills be higher for a larger home?
- Will this new neighborhood have home owner's association fees?
- Can I afford to fill up this larger home with furniture?
- What about property taxes?
- Will my loan include mortgage insurance payments?
- Does the monthly payment ever change throughout the life of the loan?
There are a lot of factors that affect how much home can I afford, and most likely the only person that can really answer that question is YOU.
If you haven't made a monthly budget do so now.
Visit the following link to figure out the math behind the FHA lending guidelines. This is what a mortgage broker will tell you when you ask, "How much home can I afford?"