Loan Size

What Size Loan Can You Qualify For?

Very few buyers can pay cash for a home. Instead, most homebuyers apply for a mortgage. 

Many things influence the type and amount of mortgage you will be approved for:

  • Your credit history
  • Your income and those who will be applying for the mortgage with you
  • Your downpayment
  • Your debts
  • Your savings
  • The type of loan you choose, such as fixed rate or adjustable rate

The kind of property you choose to buy, such as a single family home, duplex, condominium or cooperative unit, also figures in the kind of loan you'll get. In general, the smaller the amount you owe, the higher the mortgage you'll qualify for. Pay off any debts you can before you apply.

The higher your downpayment, the less you have to borrow. The downpayment is usually expressed as a percentage of the lower of sale price or appraised value. Sellers and lenders prefer 20% of the sale price as a downpayment, but certain lenders require as little as 3%. Don't pledge all your cash—you'll need money for closing and moving costs. To find downpayment assistance programs visit Local Homebuying Programs online.

When you apply for a mortgage, lenders compare your income to your housing costs and other debts to see how much you can afford to spend each month on mortgage payments and other housing costs. This percentage also helps them determine how much money you can borrow to buy a house. The rule of thumb is that all debts, including housing costs, should total no more than 36% of income.

Consumer Action's Housing Information Project created this brochure in partnership with Capital One Services, Inc. © 2007 Consumer Action. Rights Reserved.