Question 1

How is my maximum home price calculated?

Accepted Answer

We calculate your maximum home price based on the 28/36 rule: your total housing costs should not exceed 28% of gross income, and total debt payments should not exceed 36-43% of gross income. We factor in your down payment, estimated interest rate, property taxes, and insurance to determine the maximum loan amount you can comfortably afford.

Question 2

What is the 28/36 rule for mortgages?

Accepted Answer

The 28/36 rule is a lending guideline where your housing costs (mortgage, taxes, insurance) should not exceed 28% of gross monthly income, and total debt payments should not exceed 36% of gross income. For jumbo loans, lenders may allow up to 43% total DTI for strong borrowers with significant reserves.

Question 3

Does my credit score affect how much I can afford?

Accepted Answer

Yes, significantly. A higher credit score qualifies you for lower interest rates, which increases your purchasing power. For example, the difference between a 6.5% and 7.25% rate on a $1M loan is about $500/month, which translates to roughly $75,000 in additional purchasing power.

Question 4

Should I use my gross or net income?

Accepted Answer

Mortgage lenders use gross income (before taxes and deductions) for qualification purposes. Enter your total annual income before any deductions. If you are self-employed, lenders typically use your adjusted gross income from tax returns averaged over 2 years.

Question 5

How do existing debts affect my home affordability?

Accepted Answer

Every dollar in monthly debt payments reduces how much you can borrow. Lenders look at your total debt-to-income ratio. For example, a $500/month car payment on a $15,000/month income uses 3.3% of your DTI, potentially reducing your maximum home price by $60,000-$80,000.

Question 6

What if I have a co-borrower?

Accepted Answer

Co-borrowers can combine their incomes, which significantly increases purchasing power. However, both borrowers credit scores and debts are considered. The lower credit score between co-borrowers typically determines the interest rate, while combined income determines the maximum loan amount.

Question 7

How much should I really spend on a home?

Accepted Answer

Financial advisors often recommend spending no more than 3-4x your annual gross income on a home. While you may qualify for more, maintaining a comfortable margin ensures you can handle unexpected expenses. Consider your lifestyle, savings goals, and future plans when deciding how much to spend.

Question 8

Does the down payment amount affect affordability?

Accepted Answer

Absolutely. A larger down payment reduces your loan amount, which lowers monthly payments and may qualify you for better rates. It also reduces or eliminates PMI. For example, putting 25% down on a $1.5M home means borrowing $1,125,000 instead of $1,200,000 (at 20% down), saving roughly $500/month.

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