How does my debt-to-income ratio affect how much house I can afford?
Your debt-to-income ratio measures your monthly debt compared to your monthly income. A mortgage lender will use your gross income when calculating your debt-to-income ratio for mortgage approval. Generally, lenders like to follow the percentages above so that your monthly mortgage payment does not exceed 28% of your gross monthly income, and your total debt doesn’t exceed 36% of your gross monthly income. However, if your debt makes it so your ratio is higher, you might still get approved for a mortgage, especially if you have a great credit score.
Keep in mind, though, that there’s a difference between qualifying for a mortgage and being able to afford it comfortably. If you already have a lot of monthly debt payments before taking on a mortgage, you may find that it’s difficult to keep up.
How much house can I afford with an FHA loan?
An FHA loan is a mortgage that is specifically designed for borrowers with lower incomes and credit scores. FHA loans are insured by the Federal Housing Administration (FHA). If you can’t pay your mortgage, the FHA will help the lender recover their costs. As a result, lenders are able to offer FHA mortgages to borrowers with lower credit scores and incomes.
With an FHA loan, you can put as little as 3.5% down on a home purchase. If the 20% down payment for a conventional mortgage sounds daunting, an FHA mortgage could be a good option for you. But be careful: Making that small of a down payment could then make your monthly mortgage payment more expensive. A good way to determine whether you could afford the monthly payments on an FHA mortgage is by using a mortgage calculator. Then, you can see how much house you can afford with an FHA loan based on the cost of the home you’re looking to buy and the down payment you plan to make.
How much house can I afford with a VA loan?
If you’re an active member of the U.S. military or a veteran, you may qualify for a VA loan. A VA loan is a mortgage that’s backed by the U.S. Department of Veterans Affairs. With a VA loan, you don’t need to put any money toward a down payment, and you may be eligible to get a mortgage even with a lower credit score.
As is the case with an FHA loan, you’ll need to be careful with a VA loan to make sure you don’t take on too high a mortgage, especially if you’re not putting any money toward a down payment. Use a mortgage calculator to play with the numbers based on your loan amount and interest rate.
How much house can I afford on my salary?
The amount you’ll be able to afford on your salary will hinge on your existing debt and expenses. Earning the same salary as someone who can afford a $300,000 home doesn’t automatically mean that you can afford a $300,000 home. A lot will depend on what your monthly debt and other bills look like.
Learn more about specific loan type rates
The lower the interest rate on your mortgage, the less expensive your monthly payments will probably be. If you’re searching for a home and want to get a mortgage, it pays to compare mortgage rates for several loan types.
View more information: https://www.fool.com/the-ascent/mortgages/how-much-house-can-i-afford/