Can You Afford Your Mortgage?

The restrictions on mortgage loans are legion these days. Knowing how much mortgage you can afford can help keep you focused on houses in the right price range and can better prepare you for the application process.

The amount of money you are qualified to borrow depends largely on how much of your monthly income goes toward your monthly mortgage payments. Small changes in your interest rate can boost your payments, which can result in qualifying for a smaller loan.

Lenders use two separate guidelines to decide if you qualify for a loan: the housing-expense ratio and the total-obligation-to-income ratio.

The housing-expense ratio compares your monthly income before taxes with your housing costs, which include your mortgage payment, real estate taxes, mortgage insurance (required if you make a down payment of less than 20%) and any association fees or dues. In general, your housing costs shouldn't surpass 28% of your income. ...