What Can You Spend?

Explanation:

When deciding the price range of your house, there are really two questions that need to be asked. What can I spend? And what should I spend? This page deals with the first.

The answer to the question “What can I spend?" has a simple answer: whatever someone will lend to you; hence our “Loan Calculator."

The “Loan Calculator" gives a rough estimate of what lenders are likely to pre-approve for you. Its only purpose on this site is to give you a ballpark price as you begin house shopping. A pre-approval from a lender is the best way to find out what you can spend.


The Numbers:

A variety of factors come into play during the loan approval process. The first is your Credit Score.

Many times this number is used to qualify or disqualify you for a certain type of loan. For example most Physician Mortgage programs require at least a 680 credit score to qualify. FHA, Regular Amortized, and VA loans have other criteria. Since most people don’t know their credit rating our calculator assumes that you qualify for whatever loan type you selected.

The second major consideration is income.

The amount you are allowed to borrow is determined as a percentage of your gross income. Physician Lenders allow 50% of your gross income to be tied up in debt. Regular Amortized, FHA and, VA loans normally allow 41%. Credit rating can play some part in adjusting this percentage.

As stated above the percentage of gross income represents total standing debt. This leads to the third consideration, other payments.

Lenders will subtract monthly payments on debt to arrive at pre-approval number. This includes but is not limited to car payments, credit card payments, and student loans. So when finding a pre-approval number, companies will allow these payments and your house payments to equal a percentage of your gross income.

Keep in mind our calculator assumes taxes and insurance on the house. In most cases these are paid into an escrow account as part of the monthly house payment. Thus lenders add those to monthly payments in the same way they do other debt. Again our calculator assumes numbers based on the house value. Actual numbers may vary drastically depending on the location of your home.