To determine how much money a company will lend you for a home, lenders use what are called borrower-qualification ratios. These are based on your income and expenses. A lender can qualify you based on a percentage (28 percent) of your monthly income, or on a percentage (36 percent) of your debt load. Under generally accepted guidelines, lenders use the more restrictive of the two.
1. Determine gross monthly income
Salaries: ________
Dividends: ________
Commissions: ________
Social Security: ________
Pensions, retirement funds, etc.: ________
Other income sources: ________
Add all of these numbers: ____________ (line A)
2. Determine total monthly expenses
Auto loans: ________
Credit card payments: ________
Other long-term loans: ________
Other personal debt: ________
Pensions, retirement funds, etc.: ________
(Don’t include loans that will be paid off in 10 months or less.)
Add all of these numbers: ____________ (line B)
3. Subtract total expenses from monthly income
Subtract “line B” from “line A.”
Net monthly income: ____________
4. Multiply net monthly income by 0.28
Equals maximum monthly mortgage payment under monthly-income method.
Net monthly income x 0.28: ____________
4. OR multiply net monthly income by 0.36
Equals maximum monthly mortgage payment under debt-ratio method.
Net monthly income x 0.36: ____________
5. Determine the maximum amount of money you can afford to borrow
By matching the figures in step 4 against this amortization table. To be conservative, use the lower of the two monthly payment figures you calculated. In no case should your payment exceed the higher of the two numbers.
6. Determine your total project budget
By adding the loan amount to your estimated down payment. (Note: This figure must include any outstanding balance owed on your land.)
| Amortization Table | Amount Borrowed | ||||
| Annual Interest Rate | $100,000 | $150,000 | $200,000 | $250,000 | $300,000 |
| 4.0% | ($477.42) | ($716.12) | ($954.83) | ($1,193.54) | ($1,432.25) |
| 4.5% | ($506.69) | ($760.03) | ($1,013.37) | ($1,266.71) | ($1,520.06) |
| 5.0% | ($536.82) | ($805.23) | ($1,073.64) | ($1,342.05) | ($1,610.46) |
| 5.5% | ($567.79) | ($851.68) | ($1,135.58) | ($1,419.47) | ($1,703.37) |
| 6.0% | ($599.55) | ($899.33) | ($1,199.10) | ($1,498.88) | ($1,798.65) |
| 6.5% | ($632.07) | ($948.10) | ($1,264.14) | ($1,580.17) | ($1,896.20) |
| 6.75% | ($648.60) | ($972.90) | ($1,297.20) | ($1,621.50) | ($1,945.79) |
| 7.0% | ($665.30) | ($997.95) | ($1,330.60) | ($1,663.26) | ($1,995.91) |
| 7.25% | ($682.18) | ($1,023.26) | ($1,364.35) | ($1,705.44) | ($2,046.53) |
| Note: Payments include principal and interest only. Insurance and taxes are not included. | |||||
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