How Your Income Affects Your Loan EligibilityIf you are considering purchasing a home, one of the first things you need to do is determine the affordability of a home loan. Your income will have a significant impact on the amount of money you can borrow and the type of mortgage for which you are eligible. Typically, a salary of $60,000 equates to a mortgage of between $120,000 to $150,000. However, this is a conservative estimate and may be over-estimated by many.
Understanding the PITI RuleWhen applying for a mortgage loan, lenders use the PITI rule, or principal, taxes, interest, and insurance, to determine the amount of money you can borrow. Generally, lenders prefer that PITI is less than 28 percent of your total monthly income. For example, if your monthly income is $5,000, lenders prefer that your monthly PITI is no more than $1,400. Key Point: The PITI rule can significantly affect how much money you can borrow and should be considered when planning your home budget.
Debunking the $60k-$150k Mortgage MythWhile a salary of $60,000 may seem to indicate the possibility of a mortgage between $120,000 to $150,000, this is often an over-estimation. Many factors affect the amount of money you can borrow, including your debt-to-income ratio, credit score, and assets. Additionally, mortgage lenders consider the total cost of the home, including property taxes, homeowner’s insurance, and HOA fees. Key Point: Do not rely solely on your income to determine the amount of money you can borrow for a mortgage loan.
Factors that Affect Mortgage AffordabilitySeveral factors affect your mortgage affordability, including:
- Debt-to-income ratio
- Credit score
- Down payment amount
- Interest rates