How to Use a Mortgage Calculator to Determine How Much You Can Borrow

At Chissell Mortgage Group, we understand that buying a home can be a daunting task, especially if you're not sure how much you can afford to borrow. That's why we recommend using a mortgage calculator to get a better idea of your budget. In this article, we'll go over the different factors that affect your borrowing capacity and show you how to use a mortgage calculator to calculate your maximum loan amount.

Debt-to-Income Ratio Determines How Much You Can Borrow

One of the most important factors that lenders consider when determining your borrowing capacity is your debt-to-income ratio (DTI). This is the percentage of your gross monthly income that goes toward paying off debt. Ideally, lenders prefer to see a DTI of no more than 43%, although some may allow higher ratios for borrowers with strong credit profiles.

W2 vs. Self-Employed Income Can Affect How Much You Can Borrow

If you're self-employed, lenders may require additional documentation to verify your income, such as tax returns and profit and loss statements. Keep in mind that your income will be averaged over the past two years, so if your business has experienced a decline in revenue recently, this could impact your borrowing capacity.

Don't Forget Taxes and Insurance When Using a Mortgage Calculator

When calculating how much you can afford to borrow, it's important to factor in the cost of property taxes and insurance. These expenses will be included in your monthly mortgage payment, so you'll want to make sure you can comfortably afford them.

Homeowner Association Fees Need to Be Included In A Mortgage Calculator

If you're purchasing a property that is part of a homeowner association (HOA), you'll also need to factor in the cost of HOA fees. These fees vary depending on the community and can range from a few hundred dollars to several thousand dollars per year.

Credit Score Determines Your Interest Rate In A Calculator

Your credit score plays a significant role in determining your interest rate and, ultimately, your monthly mortgage payment. A higher credit score can help you qualify for a lower interest rate, which can translate into significant savings over the life of your loan.

Loan Terms Affect Your Monthly Payment in A Mortgage Calculation

The term of your loan, or the length of time over which you'll repay your mortgage, will also impact your monthly payment. A longer term will result in a lower monthly payment, but you'll end up paying more in interest over the life of the loan.

Using a Mortgage Calculator

Calculating all of these factors on your own can be a difficult task. Enter your income, expenses, and credit score, and the calculator will give you an estimate of your maximum loan amount.

Ready to discover your borrowing power? Try out our mortgage calculator!