Many factors determine the amount of money you can borrow for a mortgage.
“How much mortgage can I get?” This is a question that most potential homebuyers ask at some point during their journey. In truth, there’s no definitive answer to this question. In this article, we’ll discuss five of those factors.
Your Annual Income (before taxes)
Lenders will want to see proof of your income and your Tax Returns. They will use this information to calculate your Debt-to-Income Ratio, which is a critical factor in deciding whether or not to approve your loan. In general, the higher your income, the more money you’ll be able to borrow.
Your employment status will strongly affect the amount of money you can borrow for a mortgage. If you are employed full-time, lenders will feel more confident in your ability to make regular payments and will therefore be more likely to approve a larger loan. On the other hand, if you are self-employed or have an unreliable income, lenders will be more conservative and may require a higher down payment or a cosigner. In general, the steadier and more reliable your income is, the easier it will be to secure a larger loan.
The Mortgage Term You’ll Be Seeking
The mortgage term you’ll be seeking also plays a significant role in how much money you can borrow for a mortgage. A shorter-term loan will typically have a lower interest rate, which will save you money over the life of the loan. However, a shorter-term loan also means that you’ll have to make higher monthly payments. As a result, you may not be able to qualify for as much money when you’re seeking a shorter-term mortgage. On the other hand, a longer-term mortgage will have a higher interest rate but lower monthly payments. This could make it easier for you to qualify for a larger loan amount.
Lenders will look at your credit score to assess the risk of lending you money for a mortgage. The higher your credit score, the lower the interest rate you will be offered and the more money you will be able to borrow. For example, someone with a credit score of 750 or above is considered to have excellent credit and could be offered an interest rate of 3.5% on a $250,000 loan. In contrast, someone with a credit score of 620 or below would be considered to have poor credit and could be offered an interest rate of 5.5% on the same loan.
Type of Mortgage
The type of mortgage can significantly impact the amount of money you can borrow. For example, a conventional mortgage typically requires a down payment of 20%, while an FHA mortgage only requires 3.5%. As a result, borrowers with less saved up for a down payment may be able to qualify for a larger mortgage with an FHA loan.
These are just a few factors that determine how much money you can borrow for a mortgage. In reality, every borrower’s situation is unique, so it’s essential to speak with a lender to get a more accurate idea of how much you’ll be able to qualify for.
Contact Better Rate Mortgage to learn more
Are you thinking of buying a home? We can help! We offer many loan products, including fixed-rate and adjustable-rate mortgages, FHA and VA loans, and more. Contact us today to see how we can help you get your dream home.