How much are banks generally willing to lend for a home based on income?

Discussion
1

I’m trying to understand how much a bank might be willing to lend me for a home based on my income. For instance, if I make $165,000 a year, which is $2750 per month if I spend 20% of my gross income, would a bank only consider giving me a loan for a home worth just under $399k? I have excellent credit, no debt, and can put down 20%. I know traditionally housing costs should be 20%-30% of gross income, but in my area, homes are much more expensive, and I wouldn’t mind allocating 45% to 50% of my income towards housing. However, I’m not sure if banks would agree to lend under those conditions, especially since homes start at $600k on the lower end here.

2

Generally, the maximum debt-to-income ratio is around 50%.

3

With your excellent credit and no other debts, you might qualify for a loan where you can commit up to 45% of your gross monthly income.

4

Emory said:
With your excellent credit and no other debts, you might qualify for a loan where you can commit up to 45% of your gross monthly income.

That’s reassuring. I was worried I’d have to consider moving to a more affordable area. Looks like I might be able to make it work here after all.

5

@Hayes
Most lenders will consider up to 50% DTI, and for FHA loans, it can go up to 55%.

6

You can find Fannie Mae and Freddie Mac guidelines online. A 45% DTI using your gross income is usually acceptable. Just remember, lenders prefer steady, predictable income over occasional large bonuses.

7

As a lender, I’d say it depends on several factors including your credit, down payment, and the type of loan program. It could be anywhere from 43% to 49%. We look at two ratios to determine what you can afford.

8

Consider calculating your DTI based on your net pay instead of gross pay. It gives you a better idea of what you can truly afford. Banks often use gross income which can be misleading.

9

Most banks traditionally don’t want to exceed a 33% debt-to-income ratio. Here are some sources to consider: NerdWallet, Equifax, Citizens Bank

10

@Kade
Your standard seems outdated. The mortgage industry often allows much higher ratios, especially with strong credit profiles.

11

Harlem said:
@Kade
Your standard seems outdated. The mortgage industry often allows much higher ratios, especially with strong credit profiles.

I’ve bought and sold several houses, and this has been my experience in most transactions. Discussions about mortgages don’t always need a professional; firsthand experience is also valuable.