How Much Can I Afford?

How much you can afford and how much a lender will lend you are two different things. You may find the amount the bank is willing to lend you is more than you are comfortable budgeting. We will work with you to find the right comfort level. Most lenders have two basic formulas they use to decide the maximum they will lend you:

• For starters, they do not want the basic costs of owning a home to eat up any more than 32% of your family's gross income. The costs they consider are your monthly mortgage, property tax, and heating payments. (If you are buying a condominium, they also add in 50% of your condo fees). How these costs compare to your monthly income is called the gross debt-service ratio.
• The second test lenders use is to add in the monthly payments on all your loans and credit cards to your housing costs. Under this test, called the total debt-service ratio, lenders do not want these monthly expenses to eat up any more than 40% or so of your household's gross monthly income.

Using a 6% interest rate, 25 year amortization, $3600 a year in annual taxes and $75-$100 a month in heating costs, based on 32% G.D.S., just like above and considering you may have some other small monthly debt obligations already. We're assuming a good credit rating and other financial requirements are met.