Working Out How Much You Qualify For With a Mortgage

In looking to purchase a home it is vital to know just how much of a mortgage loan you would qualify for. The amount of mortgage loan that you would qualify for depends on a number of factors, such as your current income, interest rates and other debt payments which you may have. Banks consider a number of factors in determining how much of a loan you qualify for. Here are the most common factors used in determining how much you qualify for with a mortgage:

Monthly Income

This is the total amount of income you are receiving from all sources. It can come from employment, pension, retirement, or other sources. Your monthly income is probably the greatest factor in determining how much of a loan you would qualify for. Your monthly income can include your monthly salary, plus yearly commissions or bonuses. It is important to have financial documentation of all the sources of income at your disposal. Records for at least the last couple of years will most certainly be required by the lending institution.

Monthly Housing Expenses

This amount comes from the worksheet on housing expenses and is usually those expenses that include the taxes and insurance on the property. Besides federal taxes, they may be local taxes to also pay. Be aware of the total expenses you are going to have in the purchase and maintenance of a property. Besides real estate taxes, in this category you would also include hazard insurance, any housing association dues or fees and mortgage insurance.

Monthly Liabilities

The total amount of monthly liabilities from a special worksheet on liabilities used to determine the maximum house payment per month that you could make. Items such as car loans, credit card bills, installment or student loans, child support and alimony payments are included in this section.

Monthly Housing Payment (referred to as PITI)

This is the total amount of the loan principal, taxes, interest, insurance and other dues or fees. This amount is calculated by taking the lower of two different types of calculations: your monthly income multiplied by 28% is your PITI or your monthly income multiplied by 36% minus any other outstanding loans equals your PITI.

Maximum Principal and Interest

This amount refers to your maximum monthly principal and interest payment (often referred to as simply PI). You can obtain this amount by taking your monthly PITI payment and subtracting the monthly taxes and insurance. This calculation uses the maximum monthly principal and interest payment in determining the total amount of mortgage amount that you would qualify for.

Beginning Interest Rate

It is the rate of interest that you would likely receive on the mortgage loan. It is only a starting point, as many other interest rates would also be displayed, as well as their corresponding mortgage amount results. The amount of interest rate you will be paying on the loan is a major factor on how much of a mortgage you would likely qualify for.

Length of Loan

This is usually calculated in terms of years. This is the total number of years in which you will pay back the loan. These days, most mortgage loans are from 15 to 30 years in length.