How many times my salary can I borrow for a mortgage?

Pay is only part of the mortgage equation

Many home buyers want to budget based on their income.

It’s common to wonder how many times your paycheck you can borrow for a mortgage.

But mortgage lenders don’t think of it that way. And that’s because income is only a small part of the mortgage equation.

When everything is factored in, like your debt, down payment, and mortgage rate, you might find that you could borrow up to 6 or 7 times your salary on a mortgage. Or your budget could be smaller.

The answer is different for everyone.

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3 things that determine how much mortgage you can afford

The amount you can borrow for a mortgage depends on how much the lender thinks it can repay. And this equation is not just based on your salary; lenders consider a whole host of factors.

Here are the three main pillars that mortgage lenders use to decide how much to lend you:

  1. Solvency – Does your credit score and report suggest that you are a responsible borrower who will prioritize mortgage payments?
  2. Advance payment – The more money you invest, the less likely the lender will lose if the loan defaults
  3. Debt to Income Ratio (DTI) – When applying for a mortgage, your income is always considered in the context of your debt

Each of these factors is about as important as the others. And each will have a big impact on how much mortgage you can afford.

How much mortgage can I afford on my salary calculator

The only way to know for sure how much mortgage you can afford on your payday is to talk to a lender. They will look at every element of your financial situation to calculate the exact amount you can borrow.

But if you are still in the “research” phase, you can skip the phone call and get a good estimate of your budget using a mortgage calculator.

This Mortgage calculator “ by income ” assess what you can afford based on your salary, your down payment, your existing debts.

If you want to better understand how each of these factors affects your maximum mortgage amount, read on.

Check your eligibility to buy a home (May 26, 2021)

How Your Income and Debt Affects Your Mortgage

Mortgage lenders don’t just want to know your salary. They want to know how much “discretionary” income you have – the amount that is left over after your fixed expenses have been taken care of.

This is why income for a mortgage loan is always considered in the context of your “debt ratio” or DTI.

If you have existing debt – like a car payment, student loans, or a credit card payment – lenders will subtract those costs from your monthly income before calculating how much of a mortgage payment you’re eligible for.

The more debt you have, the less you will be allowed to borrow for a mortgage.

Conversely, if you keep your debt low, you may be able to borrow up to 6 times your salary for a mortgage. Here’s how.

>> Related: Learn how to calculate your debt-to-income ratio

Borrow up to 6 times your salary if you have no other debt

Take a look at two borrowers, whose profiles are identical except for their debt ratios.

Borrower 1 (no debt) Borrower 2 (high DTI)
Salary $ 100,000 $ 100,000
Advance payment $ 50,000 $ 50,000
Mortgage rate (fixed over 30 years) 3.125% 3.125%
Monthly debts (pre-mortgage) $ 0 (0% of income) $ 1,000 (12% of income)
DTI 36% 36%
Maximum home purchase budget * $ 668,000 $ 445,000

* Home buying budgets estimated using The Mortgage Reports’ mortgage calculator. Your own price and budget will vary

In this scenario, Borrower One has been admirably cautious and has no outstanding debt.

Borrower two, meanwhile, has a car payment and a personal loan payment totaling $ 1,000 per month. This greatly affects the amount they can borrow for a mortgage.

Note that both loans aim for a DTI of 36%, which is typical for a conventional mortgage. However, many popular loans have a maximum DTI of 43% to 45%.

It is even possible to buy a house with a DTI of almost 50%. But many traditional lenders will not approve these loans.

And remember, the higher your DTI, the higher your mortgage rate.

So it’s in your best interest to keep your debt low – and even pay off some of it if possible – when shopping for a mortgage.

Check your eligibility to buy a home (May 26, 2021)

Oops! A problem of not having debt

There is a problem here. People who never borrow tend to have bad credit scores because they have “poor records.”

If you never or rarely borrow, you haven’t demonstrated that you are a responsible borrower. This could make mortgage qualification more difficult.

However, some lenders are willing to consider other forms of credit, such as rent and utility payments, for those with light files.

So, if you find yourself in this situation, be sure to shop around carefully and look for a lender who can help you.

Mortgage rates affect how much you can borrow on a mortgage

You don’t have to be a math whiz to understand that the less interest you have to pay on a loan, the more you can afford to borrow.

But let’s look at some examples in action. We’re making the same assumptions we used in our previous examples, except for your must-have monthly expenses ($ 300) and the interest rates you’re eligible for.

All we did was use our mortgage calculator to get the numbers. And you can do it to suit your own situation just as easily as we can.

Borrow up to 6 times your salary with a low mortgage rate

In the example above, we assume that you are offered a mortgage rate of 3.125%, which nationally is a reasonable expectation for a highly creditworthy borrower at the time of writing.

But watch how the borrower’s budget changes as mortgage rates rise and fall:

Salary $ 100,000 $ 100,000 $ 100,000 $ 100,000
Advance payment $ 50,000 $ 50,000 $ 50,000 $ 50,000
Mortgage rate (fixed over 30 years) 3.0% 3.5% 4% 4.5%
Estimated budget for the purchase of a house * $ 614,500 $ 581,000 $ 550,000 $ 521,700
Monthly payment of principal and interest $ 2,700 $ 2,700 $ 2,700 $ 2,700

* Home buying budgets estimated using The Mortgage Reports’ mortgage calculator. The calculation assumes the borrower has $ 300 in existing monthly debt

Assuming relatively low debt – $ 300 per month – and a mortgage rate of 3.0%, this person might be able to borrow up to $ 564,000 for a mortgage. ($ 614K minus the $ 50K deposit).

That’s almost six times their salary.

But suppose the borrower has credit problems and only qualifies with a 4.5% higher mortgage rate.

Suddenly, the maximum amount they can borrow on their salary drops to $ 471,000, or 4.7 times their salary. The higher mortgage rate cut their home buying budget by about $ 100,000.

Fortunately, rates are currently at all time lows, so buyers at all levels are able to maximize their budgets.

Check your eligibility to buy a home (May 26, 2021)

Your down payment affects how much you can borrow for a mortgage

While having fun with our mortgage calculator, we thought we would show you how much of a difference your down payment makes to the value of the home you can afford.

We’re going back to the assumptions we used in our first example and only changing the must-have monthly expenses ($ 300 instead of $ 0) and the down payment amount.

The salary ($ 100,000) and the mortgage rate (3.125%) remain the same.

Borrow up to 8 times your salary with a big down payment

Suppose you can make a down payment of $ 160,000 – maybe using the equity you’ve accumulated over many years in previous homes, or maybe because you’ve had a windfall of money.

With such a large down payment, how many times your paycheck can you borrow for a mortgage?

  • Home value you can afford – $ 790,800
  • Monthly payment (for mortgage principal and interest) – $ 2,700

Again, your total monthly housing costs have not changed. But the value of the house you can afford is $ 800,000 because you are making a big down payment.

Borrow almost 5 times your salary with a small down payment

Here’s what the same example looks like with a more typical down payment of $ 20,000 (about 3.5% less in this case).

  • Home value you can afford – $ 532,000
  • Monthly payment (for mortgage principal and interest) – $ 2,700

Once again, the monthly payments remain the same. But with a much smaller down payment, the home buying budget drops by about $ 250,000. (That said, $ 530,000 is a very respectable home buying budget.)

Your mortgage application doesn’t have to be perfect

Of course, you will have the biggest home buying budget if you don’t have other debt and a high salary.

But these things are not necessary. As a home buyer, it’s all about starting where you are now.

Determine what makes sense for you based on your own salary and needs, rather than aiming for a budget based on a rule of thumb.

Many people find that when they approach it this way, buying a home is more achievable than they ever thought possible.

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Aldrich Stanley

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