Deciding how much house you can afford
Your lender decides what you can borrow but you decide what you can afford.
Lenders are careful, but they make qualification decisions based on averages and formulas. They won’t understand the nuances
of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected – for all the new
opportunities your home will give you to spend money, from furnishings, to landscaping, to repairs.
Historically, banks use a ratio called 28/36 to decide how much borrowers could borrow. An approved housing payment couldn’t
be more than 28 percent of the buyer’s gross monthly income, and his or her total debt load, including car payments, student
loans, and credit card payments, couldn’t be more than 26 percent. (In Canada lenders apply similar formulas to determine how
much a buyer can afford. The Gross Debt Service ratio, or GDS, is not to exceed 32 percent of the buyer’s gross monthly income,
and the Total Debt Service ration, or TDS, is not to exceed 40 percent of the buyer’s total debt load.) As home prices have risen,
some lenders have responded by stretching these rations to as high as 50 percent. No matter how expensive your market though, we
urge you to think carefully before stretching your budget quite so much.
Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming
years. In the long run, your own peace of mind and security will matter most.
Learn more about the Buying process and
Contact Gail today to discuss your home buying needs for Charlotte, North Carolina, or
its surrounding areas.
Eight Steps to Buying Your Home
Creating Your Home Wishlist
Location, Location, Location
Opting for New Home Construction
How Can a Real Estate Agent Help Me?
Eight Important Questions to Ask Your Agent
Mortgage Calculators and Other Resources
If you are in the market for a new home, looking for an
area Realtor, or relocating to the area contact Gail to discuss all your real estate needs.