How much on average can i finance?

2 Replies

if im making 3000 a month (example) how much of a loan can i get to buy property? With good credit

Banis,

Quick answer: Check out the BiggerPockets mortgage calculator here

Detailed answer:

Your monthly income is only one piece of the equation. The bank (if that is who you're getting a loan from) will also look at your credit history and how much money you have saved for a down payment. Another factor is the type of loan (so if you're going for an FHA loan and you plan to live in the property you might be able to get a loan with only 3.5% down

There are two ratio the bank will consider: A front-end ratio, and a back end ratio.

Front-end ratio: This is your housing expense ratio, how much of your pretax gross income can go to your housing expense. Your monthly payment total (PITI - principle, interest, tax and insurance) should not be more than 28% of your gross pretax income.

Your front end ratio is 28% of $3,000 = $840. This is the maximum payment the bank thinks you can afford per month

Back-end ratio: This is your total debt to income ratio and includes mortgage, any car/student loans you're paying, child support..etc. Your total obligations shouldn't be greater than 43% of your income

Your back end ratio is %43 of $3,000 = $1,290. This is the maximum total debt the bank thinks you can afford (housing & other debt)

Other creative financing could help you avoid the back-end/front-end ratios. Strategies like seller financing and subject to could help you past some of the limits that traditional (bank) financing has.

You also need to state what your bills are.

Essentially, you'd be looking at DTI of roughly 43% which is where I think they're at these days.

So if your gross salary is 3,000 a month and you have a car payment of $300/mo, credit card payments of $200 a month and rent of 600 a month, you'd be at 1100 divided by 3,000 or a DTI of 36.6% already.

That would mean you could borrow an additional 7% of your gross salary - i.e. monthly PITI payments of $210. Now subtract the monthly taxes and insurance (say 100/mo) and that leaves you 110 a month for a mortgage payment which equates to about 20k loan.

But it all depends on what your bills are.

If you are going to be replacing your rent (i.e moving in) and your car is paid off, then maybe you only have 200 in payments and that leaves you able to have a PITI payment of 1090 a month. Taxes and insurance, say are 290 a month, so your mortgage payment (principal and int only) could be 800/month.

That works out to a loan of roughly 160k or so depending on the rates - again thats just a ball park.

The key is you have to work backwards to figure out how much loan you can get. It depends on a lot of things beyond just your income. Need to figure out your existing bills. Also need to know your taxes and insurance that the property you choose will have.

One last thing. If its a rental, you will be able to offset the PITI payments with 75% of the rent so you may be able to qualify for a 250k loan provided you can find some way to acquire it first and then get a renter in there so you can use the rent to offset your PITI and keep your DTI under that magic number.

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