Loan Qualification Table: Get off the sidelines, you can qualify to purchase a nicer home than you think!

A huge part of being a real estate brokers in San Diego is to educate clients about the home-buying process. The first step that first-time home buyers often overlook is the loan qualification process. To truly understand what you can afford in your market, you must first understand how much money lenders are willing to give you. Once you understand your maximum budget, you will typically want to scale that number back to the price point at which you are most comfortable. Many first time buyers throughout Southern California are shocked at the amount that they initially qualify for!

If you are among this group of buyers that does not believe they can afford a home in your area, you may want reconsider your position. Since the official loan qualification process can be frightening to some, I went ahead and put together a table that will give you an APPROXIMATE amount that you may qualify for given hypothetical monthly income and debts. Due to the many variables that will be considered and the variety of loan programs available, this table is by no means exact. It will, however, definitely give you a ballpark estimate of what you may be able to afford.

Loan Qualification

*PMI was factored in for the 5% and 10% down payment columns

How to read the table:

  1. Find your Gross Annual Income (before taxes)
  2. Estimate your Monthly Debts
    1. Included in monthly debts would be car payments, student loans, and any other recurring debt (loans) that must be paid on a monthly basis. If you have higher monthly debts than the amount shown, you will qualify for less. If you have lower monthly debts than the amount shown, then you will qualify for more.
      1. Example: If you have $75,000 in income, $200 of monthly debts, and can afford a 5% down payment, then you will qualify for somewhere between $375,000 and $445,000.
  3. Find the Down Payment option you can afford.
    1. The down payment can be calculated by taking the percentage and multiplying it by the estimated home value.
      1. Example: With no monthly debts and $75,000 of income, if I wanted to put 5% down on a home, I could qualify to purchase a $445,000 home and would need at least $22,250 (.05 x 445,000) in cash as a down payment.

Now there are quite a few assumptions that were made to simplify the table. I will briefly go over some of the more critical assumptions now:

  1. You qualify for a 3.5% interest rate
    1. This is approximately the current 30 year fixed mortgage benchmark rate for borrowers with good credit. Of course, this can change as market conditions change. If interest rates go up, you will qualify for less. If your credit is bad, your rate will be higher.
  2. You desire a 30-year fixed mortgage
    1. This is the most common mortgage which spreads your repayment of the loan over 30 years. If you make every payment for 30 years, you will own your home free and clear
  3. The maximum debt-to-income ratio is 45%
    1. Again, this is an assumption that may or may not be accurate depending on the lender you select, the loan program, the loan amount, and a variety of other factors. This percentage is on the higher end of the debt-to income spectrum, so you may not fully qualify for the amounts in the table above.
Loan Qualification

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Please feel free to reach out to me if you have any questions regarding the home buying process. Again, there are so many variables that will be considered in loan qualification but the purpose of this article was to give you an estimate of what you may be able to purchase. If you can afford a down payment and your income/debt fall anywhere on this table, it’s time to get off the sidelines and start searching for a home to buy!

Greg Robertson is a Broker at Class Realty Group’s San Diego office. He can be reached by email at grobertson@classrealtygroup.com or by phone at 858-333-2422.

By |2017-05-09T19:02:11+00:00March 7th, 2017|Residential, Southern California Real Estate Report|0 Comments

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Kevin is the Digital Marketing Coordinator at Class Realty Group.