Lenders Assess Your Financial Situation to Determine the Loan Amount

Whenever you wish to fulfill your dream of having your own house, you ask yourself “how much can I borrow for a mortgage”. Whether or not you would qualify for a loan, depends on your gross monthly income, interest rate, debt payments and other monthly liabilities.

Calculate how much u can borrow

You can use a “how much can I borrow for a mortgage” calculator to find out how much loan you can borrow. The calculator requires the following inputs:

• Your total monthly income before tax deduction
• Monthly payment towards your existing debts
• Your monthly credit card payments
• Child support and monthly alimony
• Your desirable rate of interest ,time period of the loan (years) and down payment
• Yearly property taxes and insurances you expect

Factors determining the amount you can borrow

When you apply for a home loan, you often think about “how much can I borrow for a mortgage”. The maximum loan you can get is the amount your lenders think you can manage. The maximum loan amount that you can be offered depends on:

• Your gross monthly income: Your income is used to determine how much monthly payment you can afford.
• Your outstanding debts: Lenders consider your existing debts and how much monthly payment you make towards them.
• Debt to income ratio: The debt to income ratio can be a front-end ratio or a back-end ratio. Your gross monthly income divided by your new home loan payment (including the principal, rate of interest, property insurance and taxes) gives the front-end ratio.
Back-end ratio is your gross monthly income divided by the portion of income that goes towards paying your monthly liabilities (including the new mortgage payment, existing loan payments and credit card payments). “How much can I borrow for a mortgage” largely depends on these two ratios.
• Loan to value ratio: Loan to value ratio is the loan amount (the purchase price of the property minus the down payment) divided by the purchase price. Lenders evaluate this ratio to determine the loan they can offer you.

If you are concerned with “how much can I borrow for a mortgage”, you must work on improving your credit score by eliminating negative listings on your credit report. This is because lenders consider the score to approve you for a mortgage.

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