Your lender decides what you can borrow but you decide what you can afford.
Lenders are careful, but they make qualification decisions based on averages
and formulas. They won’t understand the nuances of your lifestyle and spending
patterns quite as well as you do. So, leave a little room for the unexpected -
for all the new opportunities your home will give you to spend money, from
furnishings, to landscaping, to repairs.
Historically, banks use a ratio called 28/36 to decide how much borrowers
could borrow. An approved housing payment couldn’t be more than 28 percent of
the buyer’s gross monthly income (25 percent or about what you bring home in one week is even better), and his or her total debt load, including car
payments, student loans, and credit card payments, couldn’t be more than 36
percent. (In Canada lenders apply similar formulas to determine how much a
buyer can afford. The Gross Debt Service ratio, or GDS, is not to exceed 32
percent of the buyer’s gross monthly income, and the Total Debt Service ratio,
or TDS, is not to exceed 40 percent of the buyer’s total debt load.) As home
prices have risen, some lenders have responded by stretching these ratios to as
high as 50 percent, which we certainly wouldn’t recommend! No matter how expensive your market though, we urge you to
think carefully before stretching your budget quite so much.
Deciding how much you can afford should involve some careful attention to
how your financial profile will change in the upcoming years. In the long run,
your own peace of mind and security will matter most.
Still have questions? Contact THE SWEET TEAM at Keller Williams Realty to speak with one of our agents about what you may or may not be able to afford.
813-966-4304 or AnotherSweetSale@gmail.com.