When you’re buying a home, the price tag can seem astronomical. Even if you qualify for a mortgage loan, it can be difficult to imagine how you could afford such an expensive property. But with careful budgeting and planning, along with some sacrifice on your part, you should have no trouble affording a home of your own. With that said, there are also various mortgage programs with different criteria to which you must adhere in order to get financing for your home.
These programs include things like loan limit parameters and qualifying ratios such as credit score and debt-to-income ratio (DTI). When applying for a mortgage loan, the lender will look at several factors to determine whether or not you’re eligible for the loan amount you request and what interest rate they will charge.
Depending on these factors – in most cases – the lender may only offer a certain maximum dollar amount that they are willing to lend to you based on their risk assessment of your ability to repay the loan. In other words, borrowing capacity is limited by many things including income, assets, credit history, debt-to-income ratio and collateral value. The good news is that all lenders have different lending guidelines and some may be more lenient than others in regards to their mortgage lending requirements.
Determining your mortgage borrowing capacity
The first thing you should do when trying to figure out how much you can borrow is to get pre-qualified for a loan. This is a process that most mortgage lenders use to determine the amount they are willing to lend you based on your financial situation. Once you know how much you can borrow, you can negotiate with a real estate agent to find a home that fits within your budget. After you get pre-approved for a loan, you will have a much better idea of how much you can afford to spend on your new home. A mortgage lender will review your finances to see if you qualify for a loan at a specific amount. There are many factors that go into determining your borrowing capacity, including your income, assets, existing debts and credit score.
The Federal Housing Finance Agency has set the conforming loan limit for single-family homes at $647,200 for 2022, an increase of $98,950 from the limit for 2021. In certain high-cost areas, the conforming mortgage ceiling is 150% of the limit or $970,800, whichever is lower.
Obtaining Jumbo Mortgage Loans
If you live in the Texas area, you may be wondering what limits there are for a Jumbo loan, Texas. Fannie Mae and Freddie Mac set maximum loan amounts for conventional loans; consequently, a Texas Jumbo Loan is one that exceeds those limits. Jumbo Loans, in general, have higher rates than conforming loans.
Higher-end custom builds and more expensive homes are often financed with jumbo mortgages. Jumbo mortgages require a higher down payment than traditional loans.
Starting January 1, 2022, the following jumbo loan limits will be established by the Federal Housing Finance Agency (FHFA):
- 2,916 counties remain at $647,200;
- Counties with loan limits of $679,650 for single-unit properties make up the highest-cost housing market areas. New York City, San Francisco, and Los Angeles are among them;
- There are 115 counties in the US that fall between $679,650 and $1,019,475. These areas are thought to have higher-than-normal prices, but not as high as those mentioned above. The maximum loan amount for locations not in Alaska, Hawaii, Guam, and US Virgin Islands properties is $679,650 as of January 1, 2022. Jumbo loans for properties in Alaska, Hawaii, Guam, and the US Virgin Islands are limited to $1,019,475. Risks and costs of categorizing are provided with additional information.
DTI and the maximum mortgage you can get
The debt-to-income ratio (DTI) is a measure of the amount of debt you have compared to your monthly income. Lenders use your DTI to determine how much house you can afford to buy. The maximum mortgage you can get is often determined by your credit score. Higher credit scores equal lower interest rates, which means more money in your pocket to put towards your mortgage, insurance, repairs and all the other expenses associated with homeownership.
A lower credit score could mean you have to pay a higher interest rate and will be limited to a lower mortgage amount. If your DTIf is too high, you may be denied a mortgage loan altogether. However, if your DTIf is slightly too high, you may be able to get a mortgage, but you will likely have to pay a higher interest rate.
Credit score and the maximum mortgage you can get
Credit score is a number based on your credit history that lenders use to determine if you’re a good risk to lend money to. The higher your credit score, the better your chances of getting approved for a mortgage loan and obtaining a lower interest rate. Just as the amount you are allowed to borrow is determined by your DTI, the amount you can get for a mortgage is also affected by your credit score. You will almost certainly qualify for a lower interest rate and, in most cases, a larger loan amount with a higher credit score.
Income and the highest mortgage you can get
The amount of income you make is another factor impacting your borrowing capacity. Lenders use your current income to determine how much you can borrow and what your monthly mortgage payment will be. The higher your income, the more you can typically qualify to borrow. Just because your income is high doesn’t mean you can qualify for a high-dollar amount. Your debt-to-income ratio and credit score will also affect the amount you can borrow.
When it comes to qualifying for a mortgage and the highest mortgage you can get, it really does come down to your credit score, debt-to-income ratio, and proof of income. If you have excellent credit, low debt, and high income, you should have no problem qualifying for the highest mortgage you can get.