Anonymous

# How much of a loan can I get approved for on a house? (approx)?

I am trying to figure out what price range I can look for. I know what I can "afford" from using those affordability calculators, but I don't know how much I can get approved for. My realtor told me they judge that on income (and will add extra for good credit) and that the rate is what the credit determines.

So, if you know and could please help me.... Me and my husband's gross income would be about \$65,000. (that's about what the 2008 tax return reflects) If our obligated debts equal to about \$587/mo (2 car payments and 2 minimum payments on credit cards) plus \$125 for cell phone and \$178 for car insurance, equaling to \$890/month (do they even include cell phones and car insurance in that?) How much of a loan would I get approved for? guesstimate?

Relevance

The old rule of thumb is that your mortgage shouldn't exceed 2x-3x your annual income - which is a huge range.

Really banks follow something like the 28/36 rule (it was much higher during the mortgage bubble and part of the reason many people defaulted). The first number is the percent of your monthly income that you can pay for a house payment. The second number is the total monthly debt you can carry. One of these numbers will limit how much you can borrow. The interest rate plays a very strong factor in how much money you can borrow because it affects the payment very strongly.

Ok - for you and your husband. Your gross income is ~\$65000 a year which is \$5417 a month. This means your housing payment can't exceed \$1517 a month and your total debt (including the mortgage) can't exceed \$1950 a month. Debt payments are car loans, student loans, personal loans and credit card minimums (banks don't really care what you owe, they care about your ability to make this payment and generally the more you owe the higher the payment is anyway). The cell phone bill and insurance bill are not debt payments, so they don't care (they build this into the maximum ratios of 28% and 36% assuming you have enough to live on including these types of thing).

\$1950 - \$587 (your other monthly debts) = \$1363 a month. If you didn't have this other debt you could afford \$1517 a month (the 28%).

So now we know your maximum payment. A mortgage payment is comprised of up to 5 components. Principal, interest, real estate taxes, homeowner's insurance and private mortgage insurance (if you put down less than 20%). Because we don't know where you are it becomes a complete guessing game at this point. Real estate taxes are the real wild card here. I have personally experienced anything between 4% of value of the home per year (upstate NY) to 0.5% of value per year (rural NC). The national average is closer to 1.5%

So - let's assume for a second that you can afford ~\$150,000 mortgage (between 2x and 3x annual income). The principal and interest on a \$150,000 mortgage (at a fixed rate of 5.25% which will require a credit score of about 740 or so to get) is \$828 a month. The real estate taxes (on average - the 1.5% of value per year) is \$188 a month. Homeowner's insurance is probably \$50 a month (unless you live on a coast, then multiply this by 4 or 5). Finally PMI will depend on how much you put down, but let's guess \$150 (will be more the less you put down and the more you borrow). So the total is \$1216. Depending on real estate taxes you could afford a little more than \$150,000 (but probably not as much as \$175,000).

So the LONG answer was ~\$160,000 which depends heavily on the real estate tax rate in your area!

good luck!

Do you have 20% down payment, plus closing costs, plus 3 - 6 months of reserves saved up? That is another factor in the equation in addition to credit scores around 700 or better, plus at least 3 years track record on your jobs.

Also, they do not look at your minimum payments on credit cards (and if you are only making minimum payments, it will take roughly 30 yrs to pay off your current balance, depending on your interest rates). They want to know total balances on all of your debt.

Just based on your gross income, at a max. of 3 x gross, you max out at about \$195,000 house price, less 20% down, leaves you about \$155,000 mortgage.