How much do you qualify for based on typical lender requirements?
Generally, the lender will require that your monthly payments not exceed 28% of your gross monthly income.
Let’s take a look at how a lender would typically determine your ability to meet monthly house payments.
First, determine your gross monthly income from all sources. Then multiply that amount by 28% to determine an approximate allowable monthly payment. This payment includes principal, interest, taxes and insurance. From this amount subtract taxes and insurance to arrive at your allowable principal and interest payment. You can obtain your property taxes from the local township office and you can contact your insurance agent for homeowner rates.
Now, while shopping for your mortgage, you probably have discovered the current interest rate. Use the chart below; find the column, which applies to that rate. Follow the number down until you find the number that is closest to your principal and interest payment. To the left of that you will find the loan amount for which you probably qualify. If you intend to apply for a 90% loan, divide the loan amount by .90 to calculate the price of the house that would require this monthly payment. Private mortgage insurance (PMI) is usually required for loans with loan-to-value (LTV) percentages that exceed 80%. This allows the borrower to make a down payment that is less than 20%. The example to the right illustrates this procedure:
| Loan Amount: | $ |
| Property Value: | $ |
| Interest Rate: | % |
| Mortgage Term: | Years |
| Property Tax: | $ per year |
| Property Insurance: | $ per year |
| PMI: | % |
| First Payment Date: |