Elise Greenberg

Your Neighborhood Realtor

Prequalification Math-how much home can you qualify to buy?



How much home can I qualify to buy?

Step 1:  $ Sales Price - $ Down Payment = $ Mortgage

Step 2:  $ Down Payment + 3.5% of sales price for Closing Costs (title insurance, transfer taxes, etc.)= $ Cash Needed (seller assist of up to 3% could be requested if approved)

 

Step 3:  Using standard calculators based on current interest rates (for credit scores of 720 and above and for most buyers, 30 year (360 mos.) fixed rate:

            $ Monthly Principal and Interest + $ Monthly Taxes (can be found on any home listing) + $ Homeowner's Insurance ( .35% x total sales price divided by 12) + $ PMI (if putting down less than 20% this number would approx .75% of the amount borrowed divided by 12 mos.) + $ Homeowner or Condo Association Fees (if any based on monthly amount) - $ Total PITI (or go to link below for **mortgage calculator and use ADVANCED)

Step 4:  $ PITI / $ Gross Monthly Income is the Front End Ratio  - SHOULD NOT EXCEED 28-38% in most conventional mortgages

Step 5:  $ PITI + $ Monthly Debt (all long term debt of 9 months or more-cars, student loans, credit cards, etc.) / $ Gross Monthly Income is the Back End Ratio  - SHOULD NOT EXCEED 43-45% in most conventional mortgage prequalifications

 

As always, consult a mortgage advisor for a more accurate prequalification amount.  VA and FHA loans have different standards, as do jumbo loans.

 

**Mortgage Calculator

 

Example:  Home Price is $300,000 with a gross income of $84,000, monthly HOA fees of $100, taxes of $6000; interest rate of 4.25%

Step 1: $300000-$15000 =$285,000 amount of mortgage

Step 2:  $15,000+$10,500 = $25,500 cash needed

Step 3:  $1402 + $500 + $87 + $178 + $100 = $2267 monthly payment

Step 4:  $2267/ $7000 = 32%

Step 5:  $2267 + $800 = $3067 / $7000 = 44%

This would likely qualify!