How much mortgage can I afford? Let a loan officer help.

Your income, debts, down payment amount, interest rate, closing costs and credit score all factor into how much mortgage you can afford. If your debt-to-income ratio (DTI) is higher than 36%, be aware that the 28/36 rule of thumb isn’t always the reality in today’s market. So, if you’re not sure how to calculate your home loan affordability or what DTI you should use, your loan officer will listen to your goals and help you determine how much mortgage you can afford by:

• 1. Explaining eligible income

  Gross monthly income is one of the primary considerations when determining how much mortgage you can afford. To calculate gross monthly income, add your total earnings for the year before taxes, then divide by 12.

  Did you know that other forms of earnings may also be eligible income sources for a mortgage, not just your employee wages and salary? Your local loan officer can explain which of the income sources below may be acceptable based on your home loan program.

  • Bonuses and commissions
  • Court-ordered alimony and child support
  • Disability payments
  • Foster care income
  • Investment returns
  • Rental or property income
  • Retirement and pension income
  • Self-employed or freelance income
  • Social security
  • Tips
  • Trust income
  • VA benefits
  • Military income

• 2. Determining your debt-to-income ratio

  Your debt-to-income ratio, or DTI, is a significant factor in figuring out how much mortgage you can afford. Your DTI is the percentage of your gross monthly income that goes towards your monthly debt payments. Your debts might include auto, student and personal loans, mortgages, credit lines, child support, alimony and the minimum payment amounts of your credit cards. To calculate your debt-to-income ratio, divide your monthly debt by your gross monthly income and multiply by 100.

• 3. Outlining closing costs

  So you can prepare for closing day, your loan officer will provide a Loan Estimate with estimated closing costs after you submit a loan application. You’ll want to factor these costs into your budget when determining how much mortgage you can afford. Closing costs will typically be 2-5% of the home’s value and are due on closing day. With Guild’s mortgage closing cost calculator, you can better estimate how much money is needed to close your real estate purchase.

  While the actual expenses aren’t the same for all home purchases, there are some standard recurring payments and one-time fees that most buyers will pay.

  • Property taxes
  • Homeowner’s insurance
  • Origination fee
  • Discount points
  • Appraisal fee
  • Processing fee
  • Other common fees for underwriting, settlement agent, title and recording

• 4. Answering questions about down payments

  Your down payment amount will vary depending on your home’s appraisal price, loan type and credit history. You may have heard that it’s a requirement to save 20% before buying. While it’s true that the larger your down payment, the less you’ll need to finance, there is no standard down payment amount. Your loan officer can help you choose the best home loan and down payment amount for your financial situation, including an affordable loan program with low or no down payment options. Ask if you have questions about down payment assistance (DPA) programs that can open the door to affordable homeownership for those who qualify.

• 5. Checking out your credit score

  An underwriter will evaluate your credit report along with your income and debt to determine whether or not you qualify for a mortgage. The higher your credit score, the less risk you pose, and the more likely your loan will be approved at a lower interest rate. On the other hand, a low credit score may affect approval and how much mortgage you can afford. You may expect to pay a higher interest rate and therefore spend more money over the life of your mortgage.