I read that mortgages are harder to come by now because of the mortgage crises, so-called.  How does a lender decide what the maximum amount is that I can borrow?

The lender considers primarily your ability to "afford the home."  They decide this by determining what your debt to income ratio is which is the comparison of your gross income (pretax) to your long-term payment obligations, including your mortgage payment and your non-housing expenses, such as car payments, student loan payments, alimony or child support payments. 

The FHA which recently bumped its lending standards and is probably the best source of mortgage money these days.    Its basic underwriting standards require that your payments for your mortgage should not be more than 29% of your gross income and your mortgage payment combined with the monthly long-term payment expenses should not be greater than 41% of your gross income.  The lender is also entitled, however, to consider how much cash you are putting down on the property and closing costs, your credit history, and if the percentages shift up or down a little bit in connection with your housing and non-housing payments.  Your job stability, and, of course, your potential earned income are all factors taken into consideration by a lender in deciding to make you a loan.


If you have questions about this or any other real estate matter, please contact Tom Bennett at (617) 531-6574 or tvb@barronstad.com.