Helpful Mortgage And Real Estate Advice

What Is The Maximum Loan Amount I Qualify For?

By on November 5, 2013 in Mortgage Videos

Before a borrower can get approved for a mortgage loan, a maximum loan amount is one of the many important things that lenders must decide on prior to approving a loan request.

If someone asked to borrower a couple thousand dollars so they can take a vacation….. how would you calculate the odds of this person’s capability of paying you back if you were to go through with lending them the amount that they requested for?

  • Do they have a steady income?
  • What type of long-term debt is this person already committed to that you know of?
  • Can this person afford to pay you back considering all the other financial obligations that they already have?

These are all very important factors to consider when trying to decide whether you should lend someone a certain amount of money. For instance, you may not feel comfortable lending this person a huge chunk of money so you come up with a limit of how much you think this individual would be able to pay you back based on all of the questions you just asked yourself.

This process is not much different when determining the maximum amount of a mortgage loan that a borrower can get approved for, because lenders usually include the borrower’s total debt-to-income (DTI) ratio along with their total housing expenses, long-term debts, and gross monthly income. This overall conclusion will help the lender see how much the borrower can afford to pay back.

Mortgage Programs usually have their own Debt-to-Income ratio that a borrower must not exceed in order to qualify for a loan with them. The traditional mortgage loan usually requires that a borrower must not exceed 41% whereas the FHA typically limits most borrowers to a maximum DTI of 45% and sometimes no higher than 50%. Basically, having a steady income and knowing your current financial obligations can tell you not only how much you would qualify for on a loan, but also whether or not this loan would be beneficial to you in the end or would it just become a financial burden for you later on down the line.

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About the Author: Jessica Lucas is the managing editor for Mortgage Home Base, a top real estate finance blog dedicated to helping borrowers and home buyers understand the home loan process. Follow Jessica on Google +, and share your comments here. .
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