Consider How Much to Borrow with a Mortgage Loan

When buying a first home, or contemplating moving into a more expensive home it can be hard to figure out just what you can afford. There is a good chance that you will qualify for a larger loan than you can comfortably afford. It is important to not just borrow the amount you are pre-approved for, but to take a good hard look at your financial situation. At American Financial Resources we want to give you good solid advice, so that you are educated and empowered when it is time to make these important financial decisions.

Factors in Determining What You Can Afford

• Down Payment - You will want to look at your savings, money you may be receiving as a gift, or if you are selling another home to purchase your next property, how much profit you expect to make on that sale. You may want to put as little as 3.5% down on an FHA loan, or 20% or more if you can afford it to keep your payments low. It is a good idea to keep enough in savings to cover 3 months, 6 months, or longer depending on what you are most comfortable with as an emergency fund in case of lost income or an unexpected large cost such as a major home repair. Your lender will also require that you have a certain amount in savings or "reserves".
• Monthly Payment - Most loan programs limit what can be borrowed to the amount that would result in a payment that is 28% of the borrower(s)' monthly income, but you may not want to pay that much each month. After looking at all of your other expenses including car loans, student loans, utilities, saving for retirement, groceries, gas, child care costs, or whatever else might apply to your household, figure out what you can reasonably afford as a monthly mortgage payment. Keep in mind that your mortgage payment will include the principal and interest on your loan, as well as the taxes, insurance, and any other escrows. Your payment will also include mortgage insurance if applicable. Also think about what amount you would like to put into savings for retirement, a child's education fund, or other purposes each month.

Your American Financial Resources loan consultant can help you crunch these numbers and figure out how much to borrow. Give us a call at 800-316-9508, and you will be out finding that dream home (without blowing your budget!) in no time. If you would like to know what today's rates are, request a quote using the short form on this webpage, or if you are ready to move forward with your home loan simply get started online.