How Much Should You Borrow?


While it might be tempting to borrow whatever amount of money your lender is willing to give you, it’s important to think carefully about how much you will actually need to borrow in order to purchase a new home. This is an article that will help you decide how much should you borrow to get that dream home.

Contrary to popular sentiment, there is no standard formula for accurately calculating the specific dollar amount you should borrow when purchasing a new home.  Many websites offer special borrower calculators that claim to factor in important variables.  Other websites offer general rules of thumb, suggesting that you should never borrow more than 2 ½ to 3 times your gross annual income.

Consulting with a reputable loan professional and getting yourself pre-approved (not pre-qualified) is a good way to know the exact amount of money you can and should borrow.  By getting pre-approved, you increase the chance of finding the right home for your needs, you also become a “strong” buyer, likely increasing your bargaining power.

A lender will sometimes offer you the maximum amount of money that you qualify for, whether you actually need the full amount or not.  Because of this it’s vital to seek advice from a professional you can trust to figure out your complete financial picture, and future goals.

Even if you know what you want, it is still good to ask questions.  Advice from friends and family come with the best intentions; however may not necessarily be the most up to date guidance.  The market is ever changing and so are loans and loan qualifying.  What worked for your parents 20, or even 10 years ago is gone.  Lending guidelines and interest rates are more regionalized, and documentation is more in-depth.

If you are asking for an FHA loan, be sure you know the benefits and drawbacks.  Same with Conventional.  Asking questions may help you uncover a special program or even lower payment.  Trust your mortgage professional and focus on the end result, a new home with finances you feel good about.

As always, the Frazier Team is always willing to help.


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