How much house can I afford is a very popular question among homebuyers. The main factor to determine this is your debt to income ratio, or DTI. Different lenders have different requirements and guidelines for what the maximum debt ratio they will allow. Most non-conforming, or subprime, lenders have maximum debt to income ratio limits around 50-55%. Some lenders have lower limits and some lenders have higher limits and through the use of some automated underwriting engines you may even be able to get approved with a DTI of 65%. How high your LTV is, the amount of money your borrowing compared to the purchase price or value of the home, can also affect DTI guidelines. The less money you put down usually the lower DTI that is allowed.

A debt to income ratio of 41% is considered by many mortgage professionals and lenders as a comfortable and safe level. Although this number is not the standard by which all borrowers are gauged it is a great benchmark number to strive for when you purchase a home. Nothing can be more of a let down then to be cash strapped due to a house payment that is to high.

Getting approved beforehand is of the utmost importance so that you can find out how much home you can afford. There are many different variables that will affect how much home you can afford such as how much the property taxes are of the property that you find, whether the house you purchase has an association with and association fee, and how much you end up needing to pay for homeowners insurance. All of these charges will affect your debt to income ratios.

There are other loan programs that do not calculate ratios, called "no ratio" loans. These are very popular for those that may not be able to document all their income. Stated and no ratio loans are very popular programs. Some people although on paper can't afford x amount, in reality they can truly afford it.

Depending on which loan program you choose will change the amount you will be approved for. Loans that have interest only periods will reduce your monthly payment, therefore allowing you the option of purchasing a more expensive home.

Remember that when deciding how much you can afford, you are the only one who truly knows that. The mortgage professional can help you out, and even place a number on it, but you must be comfortable with the payments. Also, keep in mind that there are several other monthly payments that you will be making that are not included in your debt ratio (in most instances), such as your cell phone bill, cable, and groceries to name a few.

Remember only you know what you are comfortable spending. Do not allow yourself to be talked into spending more then that limit by family members, friends or a real estate agent.

Borrowers with substantial incomes and multiple properties are often amazed to find out that they may not qualify for a mortgage even though they feel they can easily afford the potential mortgage payment, inclusive of taxes and insurance. This is because Debt to Income ratios utilized by most lenders assume a conventional, wage earning applicant and a loan amount of less than $650,000. For borrowers with a high debt to income ratio, but substantial disposable income, the question of how much they can afford may be answered by substantiating that disposable income, however this type of underwriting is not available from most banks or mortgage companies. For more information, please contact us at 414-303-1215 or email us at msearing@mayfairmortgage.com