Discover The DIY Borrowing Capacity Calculator
Are you wondering; How much Can I Borrow for a Mortgage? If so, then before going through the whole process of going to a Loan Officer, having your credit pulled and having to wait forever to find out how much you can borrow try using these 3 Steps.
Total Your Monthly Expenses/Payments
The first thing we need to do is come up with a Total of your Monthly Obligations. But, you only need to add up things that show up on your Credit Report such as Bank Loans (student, auto, business or personal), Credit Cards (but we only need to use the Minimum Payment for the Monthly Expense) and any other “Revolving” debts you may be paying monthly.
Now you will “not” include payments such as insurance payments (even for House Insurance), mobile phones, utilities (cable, gas, electric, etc.) or anything else that can be cancelled without future obligation.
Also, you will need to calculate your “Proposed Mortgage/Loan Payment” and add that into the Total of Monthly Payments/Expenses.
Quick Note: If you are “Refinancing” then you will not include your “current” mortgage payment because it will be included with the refinance that you are applying for now!
Calculating Your Monthly Income
Next we need to figure out what your Monthly Income you have and anyone else that will be an applicant on the Mortgage/Loan with you
Here are some guidelines…
- Overtime- income generated by working overtime can only be applied to your monthly income if and only if, you have worked overtime on a regular basis for a minimum of 6 months and with some lenders 2 years. There are exceptions in instances where the overtime is mandatory, like police, nurses, bus drivers, construction workers etc.
- Rental Income- to use “Rental Income” when calculating your Monthly Income, then you must have a “Lease” which is signed to show that you will be receiving rent for a “guaranteed” amount of time. If you do not have a lease then you can show a licensed real estate agents rental statement or “bank statements” clearly showing monthly deposits every month.
Now that we have your “Total Monthly Expenses & Income” we can move on to the 3rd and final step…
Calculating Your D.T.I (Debt To Income Ratio)
The “DTI” is what the banks use to see if you qualify for a Mortgage/Loan. It is the percentage that your total monthly expenses will be of your Total Monthly Income.
We calculate this by…
Taking your “Monthly Debt” and dividing it by your “Monthly Income”.
E.G. A family with $4,000/month in expenses and $10,000 in Monthly Income would have a DTI of .40 (which is a 40% DTI).
Depending on the “Loan Program” you are applying for, the DTI will differ from program to program. But a Safe Bet would be a 38% DTI. Now this, in the past few years, was as high as 50 or even 60 (which is one of the reasons for the recent “economic crisis”).
However, if you are a First Time Home Buyer with a good deposit and you apply for a Mortgage then I have seen DTI’s as high as 48% getting approved a great deal of the time if the Credit and other factors are good overall.
That’s it, now there is no need to wonder… “How Much Can I Borrow”? Because now you are equipped with the knowledge and understanding to find out how much you can borrow for yourself.
If you want to take the guesswork completely out of the equation check in with a professional mortgage broker who has great software tools that cover most lenders borrow capacities.