Determining Your Home-Buying Budget

Buying a home is a big decision. Trying to decide if the home you're considering is within your budget can be confusing. Getting prequalified* or preapproved for a mortgage is the best way to know how much you can borrow.

How To Get Started

Qualification is based on your monthly debt-to-income ratio. This is the amount of debt you have compared to your gross income.

Here’s an example from the Consumer Financial Protection Bureau:**

If you pay $1,500 a month for your rent and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2,000. ($1,500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33%. ($2,000 is 33% of $6,000.)

A high debt-to-income ratio can suggest making monthly mortgage payments would be a challenge and repaying the loan might be a problem. In general, a number below 43% is considered acceptable when qualifying for a mortgage.

How Much Can I Afford?

It's important to remember that your down payment will have an impact on what you can afford. Twenty percent of the home’s asking price is most common and can save you from paying PMI (private mortgage insurance), which can cost you thousands over the life of the loan. Anything above 20 percent can often result in a better rate or term. If you must put down less than 20 percent, lenders may require you to pay PMI to protect them against default.

Use our Mortgage Calculators to find out how much mortgage you can afford.

Our Mutual of Omaha Mortgage loan experts will take the time to understand your individual needs and deliver truly personal loan solutions. Contact Us.

*A prequalification is not an approval of credit, and does not signify that underwriting requirements have been met.
** http://www.consumerfinance.gov/askcfpb/1791/what-debt-income-ratio-why-43-debt-income-ratio-important.html

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