How Much Can I Borrow?

One of the most common questions for first time home buyer's is: "How much can I borrow?" This is obviously the most important factor when choosing potential homes. The old standby was 3x your annual household income. Things have become more complicated in recent years as exotic loan products enabled borrowers to over-extend themselves.

Borrow Three Times Your Annual Income

In general, the 3x rule still provides a fairly accurate assessment. You can obtain a very accurate result by using the calculator below. Please keep in mind that this provides a good national average. There are several markets that encourage borrowers to over-spend. Even in these markets, you should not deviate more than 10% upward from the calculated amount.

Should You Borrow More?

If you choose to buy a more expensive house, please realize that you will be trading security for a large amount of risk.You are probably better off buying a lower priced house and waiting for home prices to rise – thus your equity will rise too. Once you have a greater amount of equity, you can obtain more favorable loan terms from lenders. Remember, patience is a virtue when it comes to mortgages.

Want to know how big of a loan you can take on? Fill in the boxes below to find out.