How Much Can I Afford? 2

When shopping for a mortgage, you should first figure out how much you can afford. Lenders will not simply give you a blank check. Instead, they'll ask for information about your income, monthly payments on debt, the purpose of the loan and any savings you may have. This helps to determine how much of a loan you can safely repay.

The goal of mortgage lenders is to lend you an amount that you can repay with a certain level of certainty, to minimize the risk of having you default on the loan. Of course, until you know how much you will be able to receive from lenders, it is difficult to begin shopping for your new home. It works both ways, though, as the amount of the loan will also depend upon the price of the home.

Another important factor is the interest rate , which gives you some flexibility. We'll work closely with you to find the right sized loan and the best interest rate.

Definitions
Monthly income

Total monthly income from all sources. All income should be entered before taxes.
Monthly housing expenses

Your monthly housing expenses from the housing expenses worksheet. The items entered as housing expenses make up the taxes and insurance portion of your monthly PITI payment.
Monthly liabilities

Your monthly liabilities from the liabilities worksheet. Your monthly liabilities are used to calculate your maximum PITI.
Monthly housing payment (PITI)

This is your total principal, interest, taxes and insurance (PITI) payment per month. This includes your principal, interest, real estate taxes, hazard insurance, association dues or fees and principal mortgage insurance (PMI). Maximum monthly payment (PITI) is calculated by taking the lower of these two calculations:

Monthly Income X 28% = monthly PITI
Monthly Income X 36% - Other loan payments = monthly PITI

Maximum principal and interest (PI)

This is your maximum monthly principal and interest payment. It is calculated by subtracting your monthly taxes and insurance from your monthly PITI payment. This calculator uses your maximum PI payment to determine the mortgage amount that you could qualify for.
Start interest rates at

The current interest rate you could receive on your mortgage. This is used as the starting point for displaying a range of interest rates and the resulting mortgage amount.
Term in years

The number of years over which you will repay this loan. The most common mortgage terms are 15 years and 30 years.


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