| How
much can I afford?
Lenders use several different methods to calculate how much you
can afford to spend on a home.
First they will want to see your
monthly budget, your income, the nature and extent of your other
assets and your debts, and the size of the down payment you plan
to make.
Once they have all the numbers
and other information, most lenders use two ratios based on your
income to determine how much they are willing to lend.
The first ratio sets a limit on what they think you can spend
for housing. As a rule of thumb, buyers with good credit can qualify
for a home purchase price roughly 2 1⁄2 to 3 times their
gross annual income.
Lenders use a second ratio to
compare your monthly debt obligations and housing cost, to your
income. This figure can raise or lower the amount of income a
lender feels you can safely use for housing expenses.
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