Your Borrowing Power

You may currently seek the best mortgage quote you can find, but really, before that step, you really need to sit down and determine how much you will be allowed to borrow based upon your savings, income and normal monthly expenses. Real estate agents like to work with buyers who have an idea of what they can afford and are likely to be approved for a mortgage.

First, select lenders whose rates and terms seem competitive, and then make appointments with them to discuss your mortgage buying power. These lenders will likely ask you a variety of questions that will help them determine if they can afford to lend you.

Usually, a single applicant can borrow about 3½ times her/his annual income. With joint applicants, you can borrow 3 ½ times the main annual income in addition to one times the second income or get a loan for 2 ½ times the joint income. Someone who is self-employed will likely have to submit three years worth of audited statements of accounts from which a net profit can be determined. Most lenders have their own rules associated with determining how much money they can loan each applicant.

Once you have figured out how much you can afford to borrow, you should calculate how much you can pay toward a monthly mortgage. Calculate your monthly income by adding your net salary, plus your partner’s net salary. This is your total income.

Now look at your monthly expenses. Select all the ones that may apply to you and others such as electricity, telephone, sewer and water, gas bills, children’s bills, credit card expenses, cable TV, insurance, food, medical bills, non-food shopping, personal savings, travel, yard maintenance, hobbies, entertainment, church funds, pet food, clothing, presents, home entertainment.

Now, you have an idea of your total monthly expenses from which you can subtract your total monthly income so that you can determine the maximum amount that you can afford for monthly mortgage payments.