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Mortgage Borrowing Capacity Formula:
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Mortgage borrowing capacity represents the maximum amount a person can borrow for a home loan based on their income, existing debt obligations, and lender-specific criteria. It helps determine how much house you can afford.
The calculator uses the borrowing capacity formula:
Where:
Explanation: This formula calculates how much you can borrow by multiplying your income by the lender's acceptable debt ratio, then subtracting your existing loan payments.
Details: Calculating your borrowing capacity is essential for financial planning, setting realistic home buying expectations, and ensuring you don't overextend yourself financially when purchasing a property.
Tips: Enter your income in dollars, the lender's required ratio (typically between 0.28-0.43), and your current monthly loan payments. All values must be non-negative numbers.
Q1: What is a typical debt-to-income ratio for mortgages?
A: Most lenders use a front-end ratio of 28% (housing expenses) and a back-end ratio of 36-43% (total debt obligations).
Q2: Does this calculation include the down payment?
A: No, this calculation determines borrowing capacity only. Your down payment affects the total home price you can afford but not the loan amount itself.
Q3: What income sources should be included?
A: Include all stable, verifiable income sources such as salary, bonuses, commissions, rental income, and investment income.
Q4: Are there other factors that affect borrowing capacity?
A: Yes, lenders also consider credit score, employment history, assets, and the type of mortgage when determining your actual borrowing capacity.
Q5: Should I borrow my maximum capacity?
A: It's generally recommended to borrow less than your maximum capacity to maintain financial flexibility and account for unexpected expenses.