Mar 082010
In other words, when calculating the mortgage you can afford a house, take into account the interest rate as part of the formula? If so, how much of a factor in this? For example, when high interest rates twice this means that you can only benefit from half a house expensive? Or how very different from that relationship?
Yes, it makes a difference, but not to the extent you fear. What is considered is the size of the monthly mortgage payment (including taxes and insurances) in relation to your income and debt load. Since a payment does not double when interest rates are doubled, it does not get THAT extreme, but the higher monthly payment will reduce somewhat the amount of mortgage for which you will qualify.
They look at the mortgage payment versus your income so the interest rate does matter. However, they will often initially look at the amount borrowed versus income as a quick way to get to the same place.
When rates are twice as high, the payment is not doubled as a portion of the payment is principal.
depends on you income and debt levels more than anything – int rates will affect the monthly payment which is than converted to a ratio of your monthly income and it has to be under a certain limit – property taxes, insurance and PMI will also affect the affordability
if you get 2 choices of mortgages and one is more than 1% higher than the other – never mind DOUBLE, then something is very wrong
rule of thumb is – don;t buy a house that is priced more than 2.5-3 times your annual gross salary – if you make $50,000 a yr – you probably cannot afford a house priced more than $130-150,000