Deciding How Much House You Can Afford

Your lender decides what
you can borrow but you decide what you can afford.

The Cox & Cox Group – Recommended Lenders

Lenders are careful, but
they make qualification decisions based on averages and formulas. They won’t
understand the nuances of your lifestyle and spending patterns quite as well as
you do. So, leave a little room for the unexpected – for all the new
opportunities your home will give you to spend money, from furnishings, to
landscaping, to repairs.

Historically, banks use a
ratio called 28/36 to decide how much borrowers could borrow. An approved
housing payment couldn’t be more than 28 percent of the buyer’s gross monthly
income, and his or her total debt load, including car payments, student loans,
and credit card payments, couldn’t be more than 36 percent. As home prices have
risen, some lenders have responded by stretching these ratios to as high as 50
percent. No matter how expensive your market though, we urge you to think
carefully before stretching your budget quite so much.

Deciding how much you can
afford should involve some careful attention to how your financial profile will
change in the upcoming years. In the long run, your own peace of mind and
security will matter most.