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. So, leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from redecorating, new furnishings, to landscaping and repairs.
Historically, banks use a ratio of 28/36 to decide how much borrowers can 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 36 percent.
As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market, we urge you to think carefully before spreading your budget too much. By staying in your financial comfort zone, you’ll be assured that you can live in your new home without being strapped for cash.