How Much Mortgage Do You Qualify For? 

Buying a house is one of the most exciting purchases you’ll make in your life. It marks a huge milestone and comes with a lot of changes, and it’s also a major commitment! It’s important to start the process with an understanding of just how much mortgage you can afford. 

Several factors come into play when you’re applying for a mortgage that will impact your ability to qualify, like your credit score, income, debt-to-income ratio, and down payment savings. Knowing where you stand with each of these factors will not just give you a better idea of how much mortgage you can afford; it’ll make the process simpler and smoother from the beginning. 

28/36 Rule 

One simple method you can use to determine how much mortgage you can afford is the 28/36 rule, a guideline that helps determine how much debt a person can afford to take on, including a mortgage. The 28/36 rule suggests that your housing costs should take up no more than 28% of your household’s gross monthly income and no more than 36% of your total debt payments. The rest of your funds should go toward other expenses. 

For example, if you’re earning $6,000 a month, your mortgage payment should add up to no more than $1,680, and the rest of your debt should add up to no more than $2,160 per month.  

The 28/36 rule is used by lenders to assess a borrower’s financial stability and ability to repay a mortgage. It helps ensure that a borrower has a debt-to-income ratio that lenders consider acceptable, and it’s a good guideline to follow when you’re planning out your budget to help you calculate just how much mortgage you can afford. 

Mortgage Calculator 

Want to see exactly what your monthly mortgage payments would look like? Lucky for you, we’ve got just the tool for that. A mortgage calculator can help you see how much mortgage you can qualify for and what your monthly payments might look like. 

Some mortgage calculators can take your income, housing costs, mortgage rate, loan terms, and more into account and approximate how much of a mortgage you can qualify for. If you already have an idea of the amount you’d like to borrow on your mortgage loan, Arkansas Federal’s mortgage calculator can help you see what your monthly payments would look like taking different variable factors into consideration. Your monthly payments can change depending on property taxes in the area, what mortgage rates you have, or how much money you provide for a down payment. 

Mortgage calculators can be a useful tool for figuring out your homebuying budget – they provide real numbers that can help you determine how much mortgage you can afford. Make sure you have an idea of any additional housing costs, like property taxes and homeowners’ insurance, and add those onto the monthly values the mortgage calculator gives you. 

Factors That Impact Mortgage Affordability 

Like we mentioned earlier, there are several factors that can come into play when it comes to how much of a mortgage you can qualify for. Things like your credit score, interest rate, loan term, and more can impact what your mortgage payments might look like and what you can qualify for. 

• Credit Score – A higher credit score will typically lead to more favorable mortgage loan terms. 

• Interest Rate and Loan Term – Depending on what rate you qualify for, what the market rates are, and what loan terms you choose, your monthly mortgage payment can look different. One of our Mortgage Loan Originators can explain your options and help you find the one that fits your budget. 

• Debt-to-Income Ratio (DTI) – If a high percentage of your monthly income is already used to pay off other debts, lenders might be concerned with your ability to keep up with monthly mortgage payments. It’s important to keep your debt-to-income ratio, or DTI, at the recommended level for the loan amount you’re applying for. 

• Property Taxes and Additional Fees –  Principal and interest won’t be the only additional expenses that factor into your monthly payments. Property taxes and homeowners’ insurance will also play a part, so it’s important to include those when you’re determining how much you’re looking to pay each month. 

Down Payment 

You’ll also want to have an idea of how much you want to contribute to a down payment when you’re determining how much mortgage you can afford. A down payment refers to a sum you pay upfront, typically between 3%-20% of the home’s value. What’s left of the total home value will be broken down into your monthly mortgage payments, which you’ll pay back over a term – usually 30 years. 

The more you can afford to put down as a down payment, the less you’ll have to borrow – and it’s possible this can reduce your monthly payments, too. Saving up for a down payment could mean you can afford more in a mortgage. It could also help you save in areas – for example, making a down payment that’s less than 20% of the home’s value could mean you’re required to pay private mortgage insurance (PMI), so making a larger down payment can help you avoid those extra costs. 

How Can I Afford More Mortgage? 

If you’re looking at your financial situation and it looks like you can’t afford the kind of mortgage you want, don’t panic! There are a few steps you can take to make your dream home more attainable. 

Start out by looking at the things mortgage lenders consider for mortgage approval – things like your credit score and debt-to-income ratio – and identify areas you can improve. Paying down debt can help improve your credit score and your DTI at once. You can also focus on improving your credit score by consolidating debt with a personal loan, and avoiding taking on any new debt. 

It’ll take some time, but if you focus on maintaining healthy financial habits, your dream home will come closer within your reach. 

Ready to Get Started? 

Once you’ve estimated what you’re comfortable paying every month, you can move on to the exciting part – starting your journey to homeownership! 

You’ll start by applying for prequalification, a process that you can do online. One of our mortgage experts can help you figure out what option might be best for you, and what all you’ll need to provide to get prequalified. 

This process will tell you how much you can afford and makes it a little easier to start shopping for homes. It gives you a better idea of what kinds of homes you should be looking at, and makes the process go faster once you find a home you want to make an offer on. 

If you find the process a bit overwhelming, you’re not alone. But help is available! If you’d like more assistance or information, get in touch with one of our Mortgage Loan Originators or visit your local branch to chat about your options. 

Arkansas Federal is proud to offer mortgage options for a variety of different homebuyers and circumstances, with local lenders helping every step of the way. Start your journey to homeownership by applying today, or speak to one of our Mortgage Loan Originators to learn more about your options.