How the Mortgage Company Decides Your Max Loan Amount

The first thing lenders will look at is your debt-to-income ratio.  The less debt you have and the more income the better.  The debt-to-income ratio compares your pre-tax income to your housing and non-housing expenses.  Some examples of non-housing expenses are debts, such as student loans, credit cards, car loans, alimony, and child support. 

So what do the lenders do with this ratio?  According to the FHA, a mortgage payment should not exceed 29% of your gross income.  In addition,  your mortgage payment combined with the non-housing expenses should not exceed 41% of gross income. 

These are not the only determining factors.  The lenders will also consider the cash you have available to put down on the house.  Finally, your lender will take into consideration your credit history to determine the maximum loan amount. 

If you have any interest in purchasing a home, it doesn't hurt to contact a mortgage company to see what the maximum loan amount you can qualify for.  The consultation is generally less than an hour and doesn't cost you anything.  Feel free to contact me for suggestions.  

Source: hud.gov