How Much House You can Afford?
Your lender decides what you can borrow but you decide what you can afford. Lenders make qualification decisions based on averages and formulas. They do not understand the nuances of your lifestyle and spending patterns. Leave a little buffer room for unexpected new home expenses such as furnishings, landscaping and repairs. Historically, banks use a ratio called 28/36 to decide how much you can borrow. An approved housing payment could not exceed 28% of the buyer's gross monthly income and total debt load. This included car payments, loans and credit card payments that could not exceed 36%. As home prices have risen, some lenders have responded by stretching these ratios to as high as 50%.Deciding how much you can afford should involve careful attention to your financial profile and how it will change in the upcoming years. Your own peace of mind and security matters most.
