FAQ - How Much Mortgage Can I Afford?
Didier Malagies • February 15, 2022
How to determine how much house you can afford.
To calculate how much house you can afford, we take into account a few primary items, such as your household income, monthly debts (for example, car loan and student loan payments) and the amount of available savings for a down payment. As a home buyer, you’ll want to have a certain level of comfort in understanding your monthly mortgage payments.
While your household income and regular monthly debts may be relatively stable, unexpected expenses and unplanned spending can impact your savings.
A good affordability rule of thumb is to have three months of payments, including your housing payment and other monthly debts, in reserve. This will allow you to cover your mortgage payment in case of some unexpected event.
An important metric that your bank uses to calculate the amount of money you can borrow is the DTI ratio — comparing your total monthly debts (for example, your mortgage payments including insurance and property tax payments) to your monthly pre-tax income.
Depending on your credit score, you may be qualified at a higher ratio, but generally, housing expenses shouldn’t exceed 28% of your monthly income.
For example, if your monthly mortgage payment, with taxes and insurance, is $1,260 a month and you have a monthly income of $4,500 before taxes, your DTI is 28%. (1260 / 4500 = 0.28)
You can also reverse the process to find what your housing budget should be by multiplying your income by 0.28. In the above example, that would allow a mortgage payment of $1,260 to achieve a 28% DTI. (4500 X 0.28 = 1,260)
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If you have been displaced by a hurricane and are currently renting, we have some good news for you. You may be eligible for an FHA 203H home loan . The FHA 203H home loan is available to renters who were displaced by a natural disaster and are looking to purchase a new home. The FHA 203H home loan is an excellent option for renters who want to become homeowners, and have been displaced by a hurricane or other natural disaster.
The short answer is Yes, you can sell your home or pay off your reverse mortgage. But here's what you need to know...
The answer is yes. If you take out a reverse mortgage, you are required to pay taxes and homeowner's insurance. Reverse mortgages are a way to convert your home equity into cash or a stream of payments. For seniors, they can be a great way to get the money they need without needing to liquidate other assets or sell their home.
Reverse mortgages are an increasingly popular way for seniors to get help with their bills and stay in their homes. But there are some misconceptions about how they affect Social Security and Medicare.
The short answer is yes, Condos, Villas, Townhomes, and Co-ops can qualify for reverse mortgages? But there are some important caveats.
Now is not the best time to refinance with rates going up. However, if you need cash to pay off high-interest adjustable debt that is climbing or if you want to take on a home project because of the increased equity of your home, cash-out refinancing is still a good option. Remember, you can always refinance again, when the rates are lower. If you don't need the money, I suggest waiting until rates come back down. Here's why. I've been in the mortgage industry for over 35 years. I've seen this cycle many times. The Fed is raising rates. Eventually, this will slow down the economy and lead to a recession. The Fed will lower rates to recover from the recession. Once this happens, it will be a good time to refinance, cash-out, pay down debt, and take on home projects. When rates drop, it will be a great opportunity to take advantage of all that equity you've built up. Rate drops are hard to predict for several reasons, but the cycle is consistent. Mortgage rates rise and fall based on a number of factors like: Changes In The Bond Market Affect Mortgage Interest Rates The bond market is a huge part of the mortgage rate equation. And that's because bonds are what most lenders use to fund their mortgages. When interest rates rise in the bond market, lenders have to pay more for their funds, which means they can't afford to offer as many mortgages at a lower rate as they could before. That makes it more expensive for borrowers to get a loan. Changes In The Secured Overnight Finance Rate Another factor that can affect mortgage rates is the Secured Overnight Finance Rate (SOFR). It's the rate banks charge each other overnight for short-term loans. The Federal Reserve sets this rate every morning and adjusts it throughout the day based on how well banks are doing financially. When SOFR rises or falls, so do other rates like LIBOR and T-bill yields — all of which impact mortgage rates. The Constant Maturity Treasury Rate Affects Rates This is another important factor that can affect your mortgage rate: The Constant Maturity Treasury Rate (CMT) is a benchmark used by lenders to determine how much interest they'll pay on bonds they buy from investors — such as those issued by Fannie Mae and Freddie Mac. When CMT rises or falls, so does your mortgage rate. The Health Of The Economy Affects Rates When the economy is strong and growing, it's likely that mortgage rates will decrease as well. This is because lenders are more willing to lend money when they're confident that they'll be repaid. In addition, homebuyers tend to have more job security when jobs are plentiful and salaries increase, so their ability to repay their loans is better than if they were unemployed or underemployed. The Health Of The Economy Affects Mortgage Rates When the economy is strong and growing, it's likely that mortgage rates will decrease as well. This is because lenders are more willing to lend money when they're confident that they'll be repaid. In addition, homebuyers tend to have more job security when jobs are plentiful and salaries increase, so their ability to repay their loans is better than if they were unemployed or underemployed. Inflation Affects Mortgage Rates Inflation is another factor that affects mortgage rates. Higher inflation leads to higher interest rates because lenders know that they will be paid back with less buying power than they lent if inflation continues at its current pace. The term structure of interest rates is another factor that affects mortgage rates. This refers to the difference between short-term interest rates such as three-month Treasury bills and long-term ones such as 30-year mortgages. The yield curve refers specifically to this spread between short-term and long-term yields on government bonds or home loans. When investors want higher returns from longer maturities, they usually require a higher yield on those investments. When all this will happen is hard to predict for several reasons, but the cycle is consistent. I'm Didier at DDA mortgage. I always want to give you options, so you can get the best loan with the best terms to fit your situation. If you have any questions about refinancing your home, call DDA Mortgage at (727) 784-5555 , or use the form below to send us your questions.
When shopping for a reverse mortgage, there are some things you need to know. First, many lenders offer reverse mortgage loan products but few specialize in them. You want someone who will work with you and guide you through the process so that you can get the best terms possible on your reverse mortgage. Always look for a reverse mortgage specialist.
Buying A Home Vs Renting A Home In An Inflationary Market In an inflationary market, buying a home is usually better than renting. Here's why: Inflation is not transitory, it is going up, but for homeowners, their mortgage principal and interest payments will never change. Renters on the other hand will see rent increase with inflation. It doesn't matter if you are renting a house or apartment, your rent will go up. Mortgage Expense And Your Budget Most renters understand this concept; however, they believe mortgages are more expensive and they can't afford one. In general, this isn't true. However, you do need to compare your rent payment to your potential future mortgage payment. The monthly payment on a mortgage is usually lower than the monthly rent payment for the same house or apartment, but not always. Try our mortgage calculator to see if your payments will be higher or lower, and compare your potential mortgage payments to your rent.
The proceeds from a reverse mortgage are not taxable. This can be very beneficial for seniors who are on a fixed income. But, please remember, your payments are not income. You are still borrowing money that will be paid back when your estate is settled, and you are still responsible for paying your property taxes.
With a Home Equity Conversion Mortgage (HECM) loan, you cannot outlive the loan. The loan will become due when you pass away. If the house still has equity, your heirs can sell the home, pay off the balance of the loan, and disperse the proceeds. If the balance of the loan is greater than the equity of the home, your heirs and your other assets are NOT responsible for the difference. If you are married and apply for a joint HECM, the reverse mortgage isn't due until the last borrower passes. Here's what you need to know according to HUD.gov as of the publication of this article.
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🏦 1. Fed Rate vs. Market Rates When the Federal Reserve cuts rates, it lowers the federal funds rate — the rate banks charge each other for overnight loans. That directly affects: Credit cards Auto loans Home equity lines of credit (HELOCs) These tend to move quickly with Fed changes. 🏠 2. Mortgage Rates Mortgage rates are not directly set by the Fed — they’re more closely tied to the 10-year Treasury yield, which moves based on investor expectations for: Future inflation Economic growth Fed policy in the future So, when the Fed signals a rate cut or actually cuts, Treasury yields often fall in anticipation, which can lead to lower mortgage rates — if investors believe inflation is under control and the economy is cooling. However: If markets think the Fed cut too early or inflation might return, yields can actually rise, keeping mortgage rates higher. So, mortgage rates don’t always fall right after a Fed cut. 📉 In short: Fed cuts → short-term rates (credit cards, HELOCs) usually fall fast. Mortgage rates → might fall if inflation expectations drop and bond yields decline — but not guaranteed. tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
🟩 1. FHA Streamline Refinance Purpose: Simplify refinancing for homeowners who already have an FHA loan — lowering their rate or switching from an ARM to a fixed rate with minimal paperwork and cost. Key Features: No income verification usually required No appraisal required in most cases (uses the original home value) Limited credit check — just to confirm good payment history Must benefit financially (lower rate, lower payment, or move to a more stable loan) Basic Rules: You must already have an FHA-insured loan No late payments in the past 12 months At least 6 months must have passed since your current FHA loan was opened The refinance must result in a “net tangible benefit” — meaning it improves your financial situation Appraisal Waiver: Most FHA Streamlines don’t require an appraisal at all — it’s based on the original value when the loan was made. 👉 So, the loan amount can’t exceed your current unpaid principal balance plus upfront MIP (mortgage insurance premium). 🟦 2. VA Streamline Refinance (IRRRL) (IRRRL = Interest Rate Reduction Refinance Loan) Purpose: For veterans, service members, or eligible spouses who already have a VA loan, this program allows them to lower their rate quickly and cheaply. Key Features: No appraisal required (uses prior VA loan value) No income or employment verification Limited or no out-of-pocket costs (can roll costs into new loan) No cash-out allowed — it’s only to reduce the rate or switch from ARM to fixed Basic Rules: Must have an existing VA-backed loan Must show a net tangible benefit (like lowering monthly payment or rate) Must be current on mortgage payments Appraisal Waiver: VA Streamlines typically waive the appraisal entirely, meaning your home value isn’t rechecked. This makes the process much faster and easier. 🟨 3. The “90% Appraisal Waiver” Explained This term often shows up when: A lender chooses to order an appraisal, but wants to use an automated value system (AVM) or When the lender uses an appraisal waiver (like through FHA/VA automated systems) up to 90% of the home’s current estimated value. In practice: It means the lender or agency allows the loan amount to be up to 90% of the home’s estimated value without a full appraisal. It’s a type of limited-value check — often used when rates are being lowered and no cash-out is being taken. It helps borrowers avoid delays and costs tied to a new appraisal. Example: If your home’s estimated value (per AVM or prior appraisal) is $400,000, a 90% waiver means your loan can go up to $360,000 without needing a new appraisal. ✅ Summary Com tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
Here are alternative ways to qualify for a mortgage without using tax returns: 🏦 1. Bank Statement Loans How it works: Lenders review 12–24 months of your business or personal bank statements to calculate your average monthly deposits (as income). Used for: Self-employed borrowers, business owners, gig workers, freelancers. What they look at: Deposit history and consistency Business expenses (they’ll apply an expense factor, usually 30–50%) No tax returns or W-2s required. 💳 2. Asset Depletion / Asset-Based Loans How it works: Instead of income, your assets (like savings, investments, or retirement funds) are used to demonstrate repayment ability. Used for: Retirees, high-net-worth individuals, or anyone with substantial savings but limited current income. Example: $1,000,000 in liquid assets might qualify as $4,000–$6,000/month “income” (depending on lender formula). 🧾 3. P&L (Profit and Loss) Statement Only Loans How it works: Lender uses a CPA- or tax-preparer-prepared Profit & Loss statement instead of tax returns. Used for: Self-employed borrowers who can show business income trends but don’t want to use full tax documents. Usually requires: 12–24 months in business + CPA verification. 🏘️ 4. DSCR (Debt Service Coverage Ratio) Loans How it works: Common for real estate investors — qualification is based on the property’s rental income, not your personal income. Formula: Gross Rent ÷ PITI (Principal + Interest + Taxes + Insurance) DSCR ≥ 1.0 means the property “covers itself.” No tax returns, W-2s, or employment verification needed. 💼 5. 1099 Income Loan How it works: Uses your 1099 forms (from contract work, commissions, or freelance income) as income documentation instead of full tax returns. Used for: Independent contractors, salespeople, consultants, etc. Often requires: 1–2 years of consistent 1099 income. Higher down payment and interest rate required. tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
