How much home can you afford?

One of the most common questions I am asked when speaking with my FHA buyers is, “How much home can we afford?”. Getting pre-approved for a home loan depends on a variety of factors like, your credit rating, current monthly expenses, down payment and interest rate.

Now, just because your lender pre-approves you for a particular purchase price, doesn’t necessarily mean you should spend that full amount on a home. Remember, we are in a decent buyer’s market right now and you should hopefully be able to negotiate a deal that makes sense to you. The pre-approval amount is a good ceiling to know what your limits may be from the eyes of a lender, but I am a big believer is sitting down with your loved one and penciling out your own budget. Just because your lender says you can afford a $1,800 payment doesn’t mean you should stretch beyond your personal means. Every homebuyer is different, and you should determine your payment threshold prior to meeting with a loan officer.

To give a basic idea on how much you may be able to afford with an FHA loan, FHA may allow for a total debt-to-income ratio up to 55%. To calculate your debt-to-income ratio you simply take your total future house payments, plus any other consumer debt (like car loans, student loans, credit cards, child support, etc…) and divide it into your GROSS monthly income. Preferably you want to stay below 45% debt-to-income ratio and even better yet, if you are feeling nervous about the economy, try 35%. Every borrower has a different payment threshold and there may be circumstances that may justify pushing your qualifying ratios above 50%.

This is fairly generic advice intended to help the masses. You should of course discuss your own unique home financing scenario with a quality loan officer to obtain specific advice.

If you have any questions about how much you may qualify for, I am happy to help.

Dustin Hughes

Northwest Mortgage Advisors

503-597-3500

dustin@northwestmortgageadvisors.com