How does the lender decide the maximum I can afford when buying a home?
The lender will consider your debt-to-income ratio. This is a comparison of your gross (before-tax) income to housing and non-housing expenses. Non-housing expenses include debt (bills or loans), such as car payments, student loan payments, alimony or credit card bills. Your monthly mortgage payment should be no more than 29% of your gross income. Your mortgage payment, added to your non-housing expenses, should total no more than 42% of your income. The lender also considers cash available for down payment, closing costs, credit history, bill payment history as well as other things to determine your maximum loan amount.
