How much home can you afford?
Your ability to obtain a loan for a new home purchase is based on a number of factors. Lenders typically make lending decisions based on three key ratios:
- Loan-to-value ratio (LTV): Represents the ratio of the loan amount to the value of the home. Lenders ideally want to see an 80% LTV, meaning a 20% down payment is preferred;
- Housing Ratio. Represents the percentage of your total income that goes towards housing expenses;
- Debt-to-Income Ratio: Represents your total debt payments, plus housing expenses as a percentage of your total income. Lenders will typically look at any of these ratios as constraints, meaning once any of these ratio limits is reached, the amount of the loan will be capped.
This calculator shows you how much home you can afford based on these ratios.