An amount of money owed by one person, company, organization, or other entity to another.
Asking yourself, “How much should I borrow?” instead of, “How much could I borrow?” is an important distinction. Rather than focusing on the largest loan amount you could possibly get from a mortgage or home equity line of credit, this approach focuses on the amount that comfortably fits your budget.
Working out a monthly household budget (one that includes any additional expenses that come with homeownership) can tell you what you should borrow. This approach helps you find an amount that comfortably fits your budget, rather than stretching your budget to fit the loan. Use our Affordability Snapshot to get a full picture of your pre-tax income, your current debt payments (such as credit cards, car loans and leases, or student loans), your savings, and how a new or additional loan payment could fit into your financial picture.
When comparing different loans or lines of credit, make sure you clearly understand their terms and would feel comfortable with the monthly payments throughout the life of the loan or line of credit. And if a lender says you can afford more than what you’ve budgeted, seriously consider whether this would be a stretch for you, and don’t hesitate to stick to a smaller amount. If a lender tries to pressure you into accepting a loan or monthly payment you are not comfortable with, choose a different lender.
Finally, keep in mind how much you can afford to borrow without putting the rest of your financial plans on hold. This can help you build a stronger future, because you’ll be better informed and better equipped to be a successful homeowner.