My Financial Healthcheck

The two key things that mortgage banks look at when deciding to approve you for a loan are your credit score, and your income.

In today’s market (written 3/08/09), your credit score needs to be over 620 to be even considered for a loan.

The following breaks out the estimated monthly payments that would be required to borrow $100,000

I picked $100k because that makes things easy for estimation purposes. Now you can go check your credit score, and get a true ballpark for how much you can borrow. So if your average credit score is 640, you’ll know that every $100,000 you borrow will cost $555 per month. Meaning that a $300,000 loan would cost you 3 x $555 = $1,665 per month.

Don’t forget the property taxes, which are on top of that. So, for example if a place lists that taxes are $4,500 per year. You’ll need to budget another $375 per month for those. We got to this by taking $4,500 and dividing it by 12 months.

In the end, if your credit score is 640, and you get $300,000 mortgage, on a property that has $4,500 in taxes, you’re total monthly payment would be $2,040 per month.

Now let’s not forget income. The banks want to see that you have been bringing home about 3 times this (pre-tax) amount per month, over the past 2 years. So to qualify for the mortgage described above, you would need a gross monthly income of about $6,120. This, times 12 months in the year, comes out to an yearly combined household income of  $73,440.

Hope this helps, feel free to post any questions and we’ll do our best to answer!