How Much Money Can I Borrow?
When a person comes to me and asks How Much Can I Borrow for a Mortgage I let them know that the question has many answers. As they look at me confused and unresponsive we delve into what is involved with the questions. I will break down a few things to know to help you get a real answer to the question. Most people don’t understand is that mortgage companies make money by giving out mortgages but they also don’t or should not want you to buy a house that you really can not afford. They don’t want this for two reasons. One they don’t want you to get stuck with the house of your dreams and than have to move out 3 months later because you could not afford to make the payments. With the mortgage crisis and economic crisis we are facing I will discuss what you can do do answer the question How much can I borrow for a mortgage.
Mortgages are first determined by the Value of the House
A bank is not going to give you a $100,000.00 on a house that is worth $50,000.00. The opposite is also true, the bank will love to give you $100,000.00 mortgage on a house thats worth a million dollars. Banks want as much equity in the house as possible to make sure there backsides are covered. In early 2000 Mortgage companies were giving out tons of loans on houses that were over valued to not credit worth individuals. This stupidity is what caused the crisis that we are in today. The banks got greedy and now are stuck lose money left and right on bad mortgages and foreclosures. They are definitely not the only people that have suffered. Borrowers thought that the banks new what they were doing and assumed that they would be able to afford these 100% financed mortgages and housing properties would continue to skyrocket. We all know now that this is not the case. As a rule of thumb, the lender does not want to finance more than 80% of the true value of house so if the value of the house drops they are not stuck losing a lot of money. They will increase the percentage if you have great credit and or if you have a lot of cash or equity in other items this way they know you can find a way to pay the mortgage. They also take into consideration how much money you make per year and how much other outstanding bills you owe to creditors. Some of these bills for example would be credit card debit, other mortgage debt, student loan debt, and car payments. All these factors come into consideration when answering the question how much can I borrow for a mortgage.