How Large a Loan Can I Be Approved For?

Two general guidelines are used by lenders to determine the maximum amount that they will be willing to lend you. These guidelines help to ensure that your housing expenses and other monthly obligations don’t take up an excessive proportion of your income, as well as ensure that you will be comfortable with the monthly payments after you’ve purchased your home.

The first guideline, known as the housing expense-to-income ratio (or front-end ratio), compares your proposed monthly mortgage payment (PITI) to your total household gross monthly income. The second guideline, known as the debt-to-income ratio (or back-end ratio), compares the total of your proposed monthly mortgage payment and other monthly obligations to your total household gross monthly income. Other monthly obligations included in calculating the back-end ratio include recurrent monthly expenses, such as credit cards, auto loans, student loans, and consumer loans, as well as other financial obligations, including alimony and child support.

In the past, most lenders used ‘28/36′ ratios, which meant your monthly mortgage payment could not exceed 28% of your gross monthly income, and your total monthly obligations could not exceed 36% of your gross monthly income. Today, however, many lenders offer expanded qualifying ratios that make it easier to qualify for a mortgage. Your loan officer can help you get a better idea of the maximum amount you can qualify for in light of your financial profile and the mortgage programs that most interest you.