Summary: This is the latest in an ongoing series of blog posts addressing some of the most frequently asked questions among home buyers in Washington State. Today we will address what is arguably THE biggest question on the minds of buyers who plan to use a mortgage loan: How much can I borrow for a house in Washington State?
Understanding how much you can borrow when you take out a home loan to finance a home purchase is essential. This is an important consideration, because it sets the stage for the rest of your home buying experience. House hunting, wish-lists, offers, negotiations — you can’t do any of these things until you know where your budget lies. Here’s an overview of how mortgage lenders determine how much you can borrow to buy a house in Washington State.
Take a shortcut: At Sammamish Mortgage, we can review your current financial situation to determine how much of a loan you’re able to take on. It’s the fastest way to get an accurate picture of your borrowing capacity. Contact our staff today to get started.
How Much Can I Borrow for a House in Washington?
When you apply for a home loan in Washington State, or anywhere else for that matter, the bank or mortgage company will want to know two things right off the bat:
- How much money do you earn each month?
- How much do you spend each month on your recurring debts?
When you combine these two numbers, you get something that’s known as the “debt-to-income ratio” or DTI. This is one of the qualifying factors that will determine how much you’ll be able to borrow to buy a house in Washington. It’s not the only factor — but it’s one of the most important.
The purpose of debt ratios is to ensure that the borrower (that’s you) is not taking on too much debt in relation to his or her income. It’s a protective measure for the borrower and the lender alike. These ratios have been studied over the years to determine how much risk is associated with a particular loan, based on its size.
Debt-to-Income Ratio and Loan Types
There is no single threshold or cutoff point for debt-to-income ratios. It can vary based on the type of loan you are using and other factors. With that being said, banks and lenders prefer that the borrower’s total debt ratio (including the mortgage payment, credit cards, car payments, etc.) does not exceed 50%. Sometimes the bar is set lower, at 43% or 45%. Again, it varies.
The FHA loan program, for example, recently set the bar a bit higher to 50% for total debt to income. But they also give lenders some leeway when qualifying borrowers. Mortgage companies can make exceptions for home buyers who have managed similar monthly payments in the past, as well as those with excellent credit and/or significant cash reserves in the bank.
Translation: These numbers are just a guideline. Don’t be discouraged by them. Contact us with your questions.
The bottom line is that taking on a mortgage loan should not put you into financial distress. Nobody wants that. And that’s why lenders use tools such as the DTI ratio to determine how much you can borrow for a home loan in Washington.
Loan limits also play a role in how much you can borrow. These too can affect the amount you are able to borrow when using a mortgage loan to buy a house. All of the major financing programs have certain limits associated with them, and that includes FHA, VA and conventional loans. These limits vary by county (in most cases) because they are based on median home prices.
Check out the different loan limit amounts for 2020 below:
Your credit score also plays a role in how much you can borrow. Generally speaking, a higher credit score means that you are a responsible borrower and will be viewed as less of a risk to a lender.
On the other hand, a low credit score means that you have likely missed payment sin the past and are considered more of a risk to a lender. Your lender will therefore be more likely to allow you to take out a bigger loan amount if your credit score is healthy versus the other way around.
Have Questions About Home Loans in Washington State?
Buying a home is a big deal that warrants the help of a professional mortgage company. At Sammamish Mortgage, we can help you secure a mortgage program that best suits you. We are a local, family-owned company based in Bellevue, Washington serving the entire state as well as OR, ID, and CO. Please contact us if you have mortgage-related questions.