Before shopping for a house on the market, you must first determine your budget.
A mortgage calculator is a useful tool that can show you how much you can take out with a mortgage loan. This will provide you with a baseline for your home shopping purchasing power. The Home Loan Expert is here to guide you on how to fill in the inputs on your mortgage calculator and explain everything you need to know about mortgage limits.
How Much Can I Borrow for my Mortgage?
Fill in the inputs for the entry fields below to estimate how much money you can borrow for your mortgage loan. Providing the most accurate information will give you a better estimate when determining your purchasing power.
- Annual Income. This is the amount you make in a year before taxes. For joint applicants, this is your total combined annual income before taxes. Annual income can come from a variety of sources beyond your salary. Tips, overtime pay, bonuses, revenue from self-employment side hustles, income from businesses and investments, rent received, capital gains, and money received from entitlement programs all count towards annual income.
- Purchase Price. This is the price of the house you wish to purchase. It does not include other fees and expenses like closing costs.
- Total Monthly Payment. This is the total amount you will pay each month, including principal, interest, and other costs and fees that are rolled into your total loan amount.
- Term in Years. This is the amount over which you repay your loan. Most mortgage loans are issued in terms of 15 or 30 years. Shortening your loan term with more aggressive monthly payments can save you thousands on interest that would otherwise be paid over the life of your loan. That being said, longer loan terms may give you more purchasing power by lowering your monthly payments.
- Interest Rate. Interest rates are available in fixed and variable forms depending on your loan type. With a fixed-rate loan, you will pay a set interest rate over the life of the loan. Adjustable-rate mortgage (ARM) loans come with a variable interest rate that fluctuates with market conditions after the negotiated initial period is terminated. Interest rates are determined in relation to your financial standing as a borrower. Those with a more secure financial standing are able to take advantage of lower interest rates, while those with shaky financial credentials should expect to pay higher interest rates to mitigate the higher risk involved in issuing your loan.
- Property Tax Rate. How much you pay in property taxes is based on your home’s location and value. Property taxes are determined based on their millage rate, equal to one-thousandth of a dollar. Expect a rate of 1% for every $100,000, so a $340,000 home would have a millage rate of $3,400.
- Home Insurance. Your financial standing will also affect the rate you are able to receive on home insurance. An appraisal of your home (the condition of your home, location) will also impact your home insurance premium. The current average premium for homeowner’s insurance in the US is around $1,300.
- Cash on Hand. This is the amount of cash you have on hand available at the closing to go towards your down payment and other closing costs.
- Loan Origination Fee. Loan origination fees cover a variety of lender-side costs, including things like employment and income verification, processing fees, document preparation, and underwriting your loan. A variety of factors can impact origination fee costs, like the type of loan, credit score, and the presence of a co-signer. Three days before closing, you’ll receive an updated itemized list of what’s included in your origination fee.
- Discount Points Paid. Discount points are paid upfront when you close on your loan. 1 discount point equals 1% of your mortgage amount. So a discount point for a home that costs $340,000 is equal to $3,400. Discount points lower your interest rate by .25% for each point paid. An initial interest rate set at 3.35% would go down to 3.15% with one discount point paid.
- Other Closing Costs. Other closing costs are typically rolled into your total loan amount and even dispersed throughout your monthly payments paid over the life of your loan. They can include filing fees, appraiser fees, and any other miscellaneous fees paid.
- Down Payment. This is the deposit you make on your home. Many loan types offer borrowers mortgage loans without putting down a 20% down payment and there are homeowner funds that can help with this expense. Be aware that putting down a down payment of less than 20% will most likely require you to purchase private mortgage insurance (PMI) which typically costs 0.5 – 1% of your loan amount per year
- Other Consumer Debts. This is the amount you pay off each month on other outstanding debts. Car payments, credit card payments, and other types of installment loans fall under this category. Be sure to include the total amount you pay towards these debts each month, not just the minimum amount required.
You can choose to see an amortization report of your mortgage loan by month or by year when you click the review button.
What Can I Do to Strengthen my Purchasing Power?
Mortgage borrowing limits are largely dependent upon your financial standing. When issuing a loan, lenders will assess you for how much risk you pose on repaying or defaulting on your loan. That means the better your financial records, the stronger your loan application and purchasing power will be.
Lenders will evaluate your financial situation using credit card reports, W2’s to verify that you have a reliable income, your debt-to-income (DTI) ratio, your loan-to-value (LTV) ratio, and any other financial factors that may impede your ability to repay your loan. A general rule used by lenders based on your DTI ratio is that your loan should not exceed 28% of your gross income. You should also aim to have an LTV ratio of 80% or less. Putting all of your financial ducks in a row will also make you eligible for better rates and terms on your loan.
How Can The Home Loan Expert Help?
For more than 15 years The Home Loan Expert has been helping homeowners get the best deal on a loan to put themselves in a better position financially. A mortgage calculator is a great place to start when determining your purchasing power using a mortgage loan. Our knowledgeable team of friendly lending Experts can ensure you have a personalized experience so that you can acquire the home of your dreams.
Because our representatives come from the same communities we serve, we are familiar with our client’s needs and can relate to what you are going through in a way that is real and tangible. Our customer-centric approach includes an efficient, in-house underwriting process that can get you approved on a loan in as little as two weeks.So give us a call today at 866-221-1926 to speak with one of our savvy lending experts, whose mission is to get you the best deal possible on your loan. We can also be reached through our online chat service to find out how you can leverage your purchasing power as a homeowner today.