How Do Lenders Decide The Maximum Loan Amount That Buyers Can Afford?
How do decide the maximum Loan amount that buyers can afford? The lenders consider your debt to income ratio, which is a comparison of your gross, pretax income to housing and non-housing expenses. Non-housing expenses include such long term debts as car or student loan payments, alimony or child support. According to the FHA, monthly mortgage payments should be no more than 29% of gross income. While the mortgage payment combined with non-housing expenses should total no more than 41% of income. Lenders also consider cash available for down payment and closing costs, credit history, and the rest of your financial picture when determining your maximum loan amount.