09/17/2010 You can always borrow money. If you're willing to accept the terms and the rates that the lender is willing to give, your financial situation and background are irrelevant. Someone, somewhere, will lend you money, for a price, regardless.
You don't need to wonder how much money you're able to borrow. For a price, you can borrow as much as you want. What you should definitely take time to think about, however, is how much money you can afford to borrow. More than this, you need to consider how much money your lender thinks you can afford to borrow. Let's sum it up.
• How much money do you think you can afford to borrow? • How much money does your lender think you can afford to borrow?
The first one is easy. At least, it should be. It often isn't, however, because many financially inexperienced individuals and first time home buyers don't evaluate the full range of costs associated with a home purchase. Closing costs, insurance, interest rate adjustments, property taxes, and other expenses add to the burden of the monthly mortgage payment itself.
As a result, you can't simply look at your income and plan to allocate half of it to your mortgage payment. You need to know all the costs associated with your loan and your home before you sign that dotted line. Make a budget. Set a plan. Most importantly, research. Understand every cost associated with your home purchase and the payment deadlines connected to those costs. Then, determine what amount you can afford to pay toward your mortgage each month. Once you've done this, you're ready to shop around for a loan.
The second question is more difficult to answer. The amount that your lender thinks you can afford to borrow will be determined by your credit score and your financial history. Evaluate potential lenders closely. Analyze the different mortgage plans they offer. When you've found one that fits within your budget, go deeper. You likely won't get the best mortgage rates the lender has to offer or the terms that drew you in. The last thing you want to do is find out too late that you aren't able to get the loan you wanted.
Answering these two questions will ensure that you're able to afford your mortgage when you purchase that dream home.
