Your ability to obtain a loan for a new home purchase is based on a number of factors. Lenders typically make lending decisions based on three key ratios: (1) Loan-to-value ratio (LTV), which represents the ratio of the loan amount to the value of the home. Lenders ideally want to see an 80% LTV, meaning a 20% down payment is preferred; (2) Housing Ratio, which represents the percentage of your total income that goes towards housing expenses; and (3) Debt-to-Income Ratio, which represents your total debt payments, plus housing expenses as a percentage of your total income. Lenders will typically look at any of these ratios as constraints, meaning once any of these ratio limits is reached, the amount of the loan will be capped.
Home Affordability
Home Affordability
Purchase Price |
Principal & Interest |
Property Taxes |
Insurance |
Monthly Payment |
|---|---|---|---|---|
| $ 135,756 | $ 712 | $ 125 | $ 62 | $ 900 |
Your debt-to-income ratio is the most limiting factor on the price of a home you can purchase. Decreasing your monthly debt obligations will allow you to increase the price of the home you can afford.
| Lending Ratio | Purchase Price |
|---|---|
| Loan to Value Ratio | $ 150,000 |
| Housing Ratio | $ 209,971 |
| Debt Ratio | $ 135,756 |