4 Factors that help in determining your mortgage loan amount

4 Factors that help in determining your mortgage loan amount

If you are first time homebuyer, then you need to figure out for a “mortgage how much can I borrow” so that your home does not become a victim of foreclosure. This article highlights 3 factors that determine the amount of mortgage loan that you can borrow from a lender.

Factors determining the loan amount

The 4 factors that help you to determine for a “mortgage how much can I borrow” are given below:

1. Credit score: The mortgage lenders look at the credit score before offering any mortgage loan. If you have good credit score, then the mortgage lenders will offer you a greater amount of loan. The mortgage rate will also be less. But if your credit score is low then the lenders will charge a high interest rate on the mortgage loan. The loan amount will be small. If your credit score is too low, then you might not even qualify for any mortgage loan.

If your credit score is too low, then you will not qualify for the conventional mortgage loans. But you can apply for FHA (Federal Housing Administration) loans which grants loans to the homebuyers with low credit score. However, these loans are of small amount.

2. Downpayment: This is another factor that helps you to determine for a “mortgage how much can I borrow”. You need to calculate the amount of money that you are willing to spend towards downpayment. In case of conventional mortgages you need to make 20% downpayment on the mortgage. But you can qualify for FHA loans by making 3% downpayment.

3. Mortgage insurance: Normally, if you can't make 20% downpayment on the mortgage, then you are required to purchase PMI (private mortgage insurance). This means that you have to pay the mortgage premiums on top of the mortgage interest. You need to figure out whether you can afford to make that amount of payment per month before taking a mortgage loan.

4. Debt-to-income ratio: You can qualify for a mortgage loan only when your debt-to-income ratio is within 36% of your gross monthly income. The last factor that helps you to determine for a “mortgage how much can I borrow” is the front-end ratio which has to be within 28% of your gross monthly income.

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