Unit 1: Do You Want to Buy a Home?

Lesson 4: How much can you afford to borrow?

Over the years, mortgage lenders have come up with two general financial guidelines, or rules, to help them decide if you should qualify for a mortgage loan and how large the loan should be. These guidelines are a starting point for judging your ability to repay a mortgage loan. By using the same guidelines lenders use, you should be able to get an idea of how much you’ll be able to spend for a house.

The general guidelines are:

1. Your monthly housing costs should total no more than 28 percent of your monthly gross income.

2. Your monthly housing expenses and other long-term debts should total no more than 36 percent of your monthly gross income.

Your monthly housing costs include your mortgage payments, property taxes, and any insurance you pay related to the house. Your long-term debts include your car loans, credit card loans, student loans, and any other regular debt payments you have. If you are buying a house with someone else (your husband, wife, parent, business partner, brother, sister, or anyone else), you should take into account your co-borrower’s income and debts.

Of course, these are just guidelines. It may be that more flexible guidelines are right for you as a first-time home buyer.

In this chapter you’ll learn how the Ramirez and Miller families use these guidelines to judge whether or not they are ready to buy a house. You’ll also get the chance to use these same tools to fill out your own pre-qualifying worksheet.

Previous Page | Next Page