How Large Of A Mortgage Can I Get

How Much Can I Borrow

One of the most common questions asked by buyers when starting the home buying process is “How much of a mortgage can I afford?” Obviously, the answer to this question will directly impact the price range of homes that you can consider when searching the market. The answer to this question is not set in stone, though, as it only takes into account your current circumstances. Interest rates or house prices could fall, or you could get a promotion and a pay rise, which could vastly increase the amount you are able to borrow. However, there are guidelines that you can follow in order to figure out how much of a mortgage you can afford and qualify for, which is where the Maximum Mortgage Calculator comes in. There are two main factors that are taken into consideration to determine how much of a mortgage payment you can handle. These are your monthly income and your monthly obligations .

Use Your Family’s Savings

Some lenders offer family offset mortgages which allow parents to help their children on to the property ladder. With this type of deal the family member puts the cash into a linked savings account and it acts as a deposit, therefore lowering the monthly mortgage payments as interest is only charged on the remaining balance. Crucially, although the family member retains ownership of the money, they won’t have instant access to it, so should only hand over cash they don’t need in the near future. These can help boost the amount you can borrow as your families savings might massively increase your deposit. Find out more in our guide to buying with your parents.

Be Conscious Of Changes In Employment

If you lose your job, how will you pay your mortgage? When you apply for a mortgage, your lender ideally will want to see a 2-year work history before they grant approval. If you choose to take the largest loan you qualify for, will you be able to make those higher monthly payments during a period of unemployment?

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How To Use Our Mortgage Affordability Calculator

Our mortgage calculator will help you work out how much you can borrow when applying for a mortgage.

All you need to do is enter the following information:

• Who is applying for the mortgage

• Your annual income

• Your guaranteed bonuses or overtime

• How much you owe on credit cards, loans and overdrafts

• How many children under the age of 18 you have

• How much you have saved for a deposit

We’ll then show you approximately how much you can borrow for a mortgage. We work this out by multiplying your income by up to five times. This will also tell you the maximum property price that you can afford.

Do Mortgage Calculators Require A Credit Check

No, our mortgage calculator simply uses the information you enter to calculate how much you might be eligible to borrow, along with the value of a home you could afford. You wont even be required to enter your name.

Only when you apply for a mortgage will you undergo a full credit check, which will be marked on your file and potentially impact your credit score.

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How Much House Can You Afford

David Weliver|

Modified date: May. 9, 2021

Buying your first home is one of the most important and exciting financial milestones of your life. But before you hit the streets with a realtor, you need to have a good sense of a realistic budget. Just how much house can you afford? You can determine how much house you can afford by following three simple rules based on different percentages of your monthly income.

What Other Factors Affect How Much I Can Borrow

Before approving your application, lenders will scrutinise your finances to see if you can afford a mortgage. They will look at whether anyone depends on you financially and whether you are in permanent full-time employment. Self-employed workers may have more limited mortgage choices because their income often varies.

As well as assessing whether you could afford a mortgage now, lenders will also stress test your finances to check whether you would still be able to afford your mortgage if interest rates increased.

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How Much Mortgage Can I Afford On My Salary Calculator

The only way to know for sure how much mortgage you can afford on your salary is by talking to a lender. Theyll look at every piece of your financial picture to calculate the exact amount you can borrow.

But if youre still in the researching phase, you can skip the phone call and get a good estimate of your budget by using a mortgage calculator.

This ‘by income’ mortgage calculator will estimate what you can afford based on your salary, down payment, existing debts.

If you want to better understand how each of those factors affects your max mortgage amount, read on.

Use Our Mortgage Calculator To Determine Your Home Budget

Sure, you could crunch the numbers yourself by dividing a home price by 180 months and then multiplying the decreasing monthly principal balance by your interest rate. But if you’re anything like us, you probably broke a sweat just reading that formula.

To save yourself the time and headache of doing a ton of math, we built a mortgage calculator to do that for youphew!

Sticking with our example of an income of $5,000 a month, you could afford these options on a 15-year fixed-rate mortgage at a 4% interest rate:

• $187,767 home with a 10% down payment
• $211,238 home with a 20% down payment
• $241,415 home with a 30% down payment
• $281,650 home with a 40% down payment

Remember: This is just a ballpark! Dont forget that grown-up stuff like property taxes and home insurance will top off your monthly payment with another few hundred dollars or so . And if you think youll be buying a home thats part of a homeowners association , youll need to factor those lovely fees in as well.

For example, if you plug in a mortgage amount of $211,238 with a 20% down payment at a 4% interest rate, youll find that your maximum monthly payment of $1,250 increases to $1,515 when you add in $194 for taxes and $71 for insurance. To get that number back down to a monthly housing budget of $1,250, youll need to lower the price of the house you can afford to $172,600.

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How Much Do You Have For A Down Payment

Your down payment affects the amount you can borrow to buy a home and the size of your payments. This will impact your monthly budget.

You must have at least 5% for a down payment if the home purchase price is less than $500,000.

If the home purchase price is between $500,000 and $999,999.99, you must have at least 5% for the first $500,000 and 10% for the remaining amount.

For home prices $1 million or over, the down payment must be 20%.

If you are a first-time home buyer, you can borrow up to $35,000 from your RSP towards your down payment.1

1. First time home buyers can withdraw up to $35,000, in a calendar year, from their RSPs for a home purchase . They then have 15 years to repay their RSP . Find out more about the RSP Home Buyers’ Plan.

Step 5 of 6

How Are Mortgage Repayments Calculated

To calculate a mortgages monthly repayment, youll need to know the value of the home youre buying, your deposit, the interest rate and the length of term.

For example:

• Deposit – £50,000
• Mortgage amount – £200,000
• Mortgage term 30 years
• Mortgage rate 2%

If the mortgage rate in this example was fixed for the length of the 30-year term, youd pay 360 monthly instalments of £739.24. This pays off the £200,000 loan in full, along with a total interest amount of £66,126.

Its important to remember that, as you begin to pay off your mortgage, the interest owed begins to fall in line with the outstanding amount on your mortgage thats owed. This means youll slowly be charged less in interest as the years go on. During a fixed term however, youll be charged a fixed, regular amount.

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Landlords Face Increased Mortgage Scrutiny

At the same time, landlords applying for mortgage finance need to meet more stringent borrowing requirements introduced by the Bank of Englands Prudential Regulation Authority in 2017.

Under the new regulations, landlords remortgaging properties or applying for a new mortgage must give detailed accounts of all their assets and liabilities, together with information on other mortgages they hold in their portfolio.

Know How Much House You Can Afford

Terri Williams is an expert in mortgages, real estate, and home buying. As a journalist she’s covered the “homes” corner of personal finance for more than a decade, with bylines in scores of publications, including Realtor.com, Bob Vila, Yahoo, Time/Next Advisor, The San Francisco Chronicle, Real Homes, and Apartment Therapy.

The 28/36 rule of thumb is a mortgage benchmark based on debt-to-income ratios that homebuyers can use to avoid overextending their finances. Mortgage lenders use this rule to decide if theyll approve your mortgage application.

Heres how the 28/36 rule of thumb works, as well as what it includes and excludes, plus example calculations and some caveats for using the rule.

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How To Lower Your Monthly Mortgage Payment

• Choose a long loan term
• Buy a less expensive house
• Pay a larger down payment
• Find the lowest interest rate available to you

You can expect a smaller bill if you increase the number of years youre paying the mortgage. That means extending the loan term. For example, a 15-year mortgage will have higher monthly payments than a 30-year mortgage loan, because youre paying the loan off in a compressed amount of time.

An obvious but still important route to a lower monthly payment is to buy a more affordable home. The higher the home price, the higher your monthly payments. This ties into PMI. If you dont have enough saved for a 20% down payment, youre going to pay more each month to secure the loan. Buying a home for a lower price or waiting until you have larger down payment savings are two ways to save you from larger monthly payments.

Finally, your interest rate impacts your monthly payments. You dont have to accept the first terms you get from a lender. Try shopping around with other lenders to find a lower rate and keep your monthly mortgage payments as low as possible.

How Do You Calculate Your Home Affordability

There are several methods for figuring out your home affordability. The easiest way is to enter your information into our calculator above. Our home affordability calculator works with either your debt-to-income ratio or your proposed housing budget.

For the first method, youll need your gross monthly income and monthly debts for the second, youll need your desired monthly payment amount. Both methods will require your down payment amount, state, credit rating, and home loan type.

Once youve input all the information according to the method you chose, our calculator will let you know the top amount you can pay for a house, as well as your estimated monthly payment.

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What Monthly Expenses Do You Have

! Please enter an amount less than }.

Estimate your monthly expenses such as groceries, transportation, child care, insurance, shopping, media and regular contributions to savings.

Please do not include rent or housing expenses.

If you’re buying a home with a spouse, partner, friend or family member, include their monthly expenses as well.

If this amount is higher than your monthly income before taxes, please contact us to discuss your options.

Step 6 of 6

Borrow Up To 6 Times Your Salary With A Low Mortgage Rate

In the example above, were assuming you are offered a mortgage rate of 3.125%, which, nationwide, is a reasonable expectation for a highly creditworthy borrower at the time of writing.

But check out how the borrowers budget changes as mortgage rates rise and fall:

*Home buying budgets estimated using The Mortgage Reports’mortgage calculator. Calculation assumes the borrower has $300 in existing monthly debts

Assuming relatively low debts $300 per month and a 3.0% mortgage rate, this person might be able to borrow up to $564,000 for a mortgage. .

Thats nearly six times their salary.

But suppose the borrower has credit issues, and only qualifies with a higher mortgage rate of 4.5%.

Suddenly, the maximum amount they can borrow on their salary drops to $471,000, or 4.7 times their salary. The higher mortgage rate has reduced their home buying budget by about $100K.

Luckily, rates are at historic lows right now, so buyers at every level are able to maximize their budgets.

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The Monthly Income Rule

If you want to focus your search even more, take the time to think about your monthly spending. While the Consumer Financial Protection Bureau reports that banks will qualify mortgage amounts that are up to 43% of a borrower’s monthly income, you might not want to take on that much debt.

“You want to make sure that your monthly mortgage is no more than 28% of your gross monthly income,” says Reyes.

So if you bring home $5,000 per month , your monthly mortgage payment should be no more than $1,400.

“With a general budget, you want to have 50% of your income going toward utilities, mortgage and other essentials,” says Reyes. Keeping your mortgage payment under 30% of your income ensures you have plenty of room for the rest of your needs.

Your Savings And Investments

Now that youve looked at your DTI and any debt you may have, think about your budget. How does a mortgage payment fit in? If you dont have a budget, keep track of your income and expenses for a couple of months. You can create a personal budget spreadsheet or use any number of budgeting apps or online budgeting tools.

In the mortgage process, its important to look at your budget and savings for a couple of reasons. One, you might need savings for a down payment, which well discuss in a later section. However, for now, lets go over something called reserves. These may be required, depending on the type of loan youre getting.

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How Will My Debt

When you apply for a mortgage, lenders usually look at your debt-to-income ratio your total monthly debt payments divided by your gross monthly income written as a percentage.

Lenders often use the 28/36 rule as a sign of a healthy DTImeaning you wont spend more than 28% of your gross monthly income on mortgage payments and no more than 36% on total debt payments .

If your DTI ratio is higher than the 28/36 rule, some lenders will still be willing to approve you for financing. But theyll charge you higher interest rates and add extra fees like mortgage insurance to protect themselves in case you get in over your head and cant make mortgage payments.

Find The Right Mortgage

Our mortgage comparison tables enable you to see the different monthly repayments you could have with different mortgages and amounts.

Make sure to plan for the future, as interest rates will affect the size of your repayments. Current interest rates are at historic lows and are likely to rise sometime in the future, meaning your monthly repayments will probably rise unless you use a fixed-rate mortgage.

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How Your Income And Debt Affect Your Mortgage

Mortgage lenders dont just want to know your salary. They want to know how much discretionary income you have the amount left over after your fixed expenses are taken care of.

Thats why income for mortgage qualifying is always viewed in the context of your debt to income ratio or DTI.

If you have any existing debt like a car payment, student loans, or a credit card payment lenders will subtract those costs from your monthy income before calculating how large a mortgage payment you qualify for.

The more debt you have, the less youll be approved to borrow for a mortgage.

Conversely, if you keep your debt low, you might be able to borrow as much as 6 times your salary for a mortgage. Heres how.

Save A Bigger Down Payment To Make Your Home More Affordable

Remember, your down payment amount makes a big impact on how much home you can afford. The more cash you put down, the less money youll need to finance. That means lower mortgage payments each month and a faster timeline to pay off your home loan! Just imagine a home with zero payments!

Now, were always going to tell you that the best way to buy a home is with 100% cash. But if saving up to pay in cash isnt reasonable for your timeline, youll probably wind up getting a mortgage.

If thats you, at the very least, save up a down payment thats 10% of the home price. But a better idea is to put down 20% or more. That way you wont have to pay private mortgage insurance .

PMI protects the mortgage company in case you dont make your payments and they have to take back the house . PMI is a yearly fee that usually costs 1% of the total loan value and isyou guessed ityet another expense thats added to your monthly payment.

Lets backtrack for a second: PMI may change how much house you thought you could afford, so be sure to include it in your calculations if your down payment will be less than 20%. Or you can adjust your home price range so you can put down at least 20% in cash.

Trust us. Its worth taking the extra time to save for a big down payment. Otherwise, youll be suffocating under a budget-crushing mortgage and paying thousands more in interest and fees.

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