How Much Mortgage Can I Afford?

May 28th, 2020

approved or declined

When you buy a new home, you need a mortgage to purchase it. And before you get a mortgage, you need to determine how much mortgage you qualify for. Different sources may qualify you for different mortgage amounts. And how much you qualify for does not necessarily equate to how much you can afford.

How much you can afford is based on your personal budget. When a mortgage lender tells you how much you can qualify for, that is the highest mortgage amount they’ll approve you for. But this may not be the mortgage size you end up closing on.  You need to personally determine how much you think you can afford, according to your personal lifestyle choices, spending patterns, and how long you think you’ll live in the home, then cross reference that against how much house you want and need.

You may be able to qualify for a $500,000 mortgage, but only be able to afford a $400,000 mortgage because of your savings goals, monthly bills, and other spending habits. So you wouldn’t close on a $500,000 mortgage just because you can. You’d choose a mortgage amount that fits your budget.

To find out how much you can qualify for, you can refer to various resources, though they may offer different numbers with varying accuracy.

ONLINE

Online pre-approval calculators are limited because you fill out the key information but you may not know what to accurately input for current mortgage insurance rates, acceptable debt ratios, accurate interest rates for your scenario, current property taxes, required down payments, etc.

WHAT IS MY CURRENT RENT?

You may limit your house hunt to properties that would require monthly mortgage payments in the same range of your current rent payments, but this limits your options. One cannot always expect a home for sale that they want to live in that happens to equal their current rental payment. Using the current rent payment that you are comfortable with is not an accurate measure of how much you can afford or how much you can qualify for.

MORTGAGE LENDERS

When you contact a mortgage lender, some loan officers may provide their own estimate as to what you qualify for without getting your file reviewed by an underwriter. This is called a pre-qualification, and you’re trusting the loan officer’s educated guesswork.  Other lenders will have an underwriter review your file and issue a proper pre-approval. A pre-approval can be used as long as there are no changes in your financials between pre-approval and going under contract on a new home.

The two important takeaways of this discussion are:

  • Carefully review how much mortgage you are qualified for versus how much you feel you can afford.
  • Make sure your mortgage pre-approval application is reviewed by an underwriter for the greatest degree of accuracy.

Feel free to call me or email me and ask questions about how much home you can qualify for versus how much you can afford.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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