Mortgage – How Much Can I Borrow?

Nearly all buyers must finance the purchase of their home. When it comes to the mortgage, the question on everyone’s mind is how much can I borrow?

Putting the cart before the horse is an old cliché, but one that actually makes sense. This is particularly true when it comes to real estate. What is the first thing you do when the decision is made to buy a home? You go house hunting!

In truth, the first step you should take is to figure out how much can I borrow? Why? Well, there are a number of reasons. First off, it lets you find out if you can borrow at all given credit, debt and earnings issues. Assuming you can, the lender will then give you a loan value that you can use when shopping for a home. If you qualify for $350,000, there is no point in looking at million dollar homes unless you have a lot of cash set aside.

So, what are the nuts and bolts of how much you can borrow on a mortgage? This decade has seen a wild fluctuation of figures. The results of this are now being seen as foreclosures, defaults and short sales spring up right and left. Simply put, the question of how much can I borrow was not answered correctly by a lot of borrowers and lenders.

Traditionally, you can borrow a set amount of 80 percent of the appraised value of a home. If a home is selling for $300,000, this means a bank will give you $240,000. You are responsible for coming up with the additional $60,000 plus all closing costs.

Any way you look at it, that is a big chunk of change. In fact, it created a large subsection of the population that would never be able to buy a home. To overcome this, the conforming loan was put into action by the federal government.
A conforming loan is one that the government will guarantee. The amount you can borrow is currently in flux, but ranges from $200,000 to $400,000 or so. In areas with home values that are much higher such as California, this number is in the process of being adjusted upwards.

Regardless, conforming loans have led to much higher borrowing rates. Since the lenders are not really risking much, they will provide loans with 90, 95 and even 97 of the financing. Going back to our $300,000 purchase, you would only have to come up with $9,000 if you were able to get a conforming loan with three percent down.

How much can I borrow? This is the central question for every buyer. In general, always look at conforming loans first. They offer the lowest down payment option. If you have served in the military, there are also some excellent loan programs available to veterans.

Regardless, make sure you figure out what you can borrow before you go house hunting. There is no point in falling in love with a home you can’t afford.
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