The 5X Rule– A Quick Qualifier

While there are a slew of great mortgage calulators available, what if you’re engaged in an enjoyable conversation with someone while walking downtown, no computer or calculator anywhere close to you, and they ask you, “How much home do you think that I could buy?”  The quick answer that I like to use, and is a good ballpark for would be real estate buyers, is, “Add your down payment to whatever five times your gross, annual household is, and that’s likely your number.  Once you become pre-approved with your favorite mortgage professional, you’ll know for certain…”  For example, if a couple generates $200,000 per year in gross income, and presuming that they have $250,000 for down payment, and further presuming that they have the average, additional debt of around $750 per month, they comfortably qualify for a $1,250,000 purchase (5x$200,000 + $250,000 =$1,250,000).

And while this is a good ballpark, since so many factors can affect qualification, like credit score/profile, loan-to-value, loan program, occupancy, reserves, property type, additional debt, employment, it’s important that anyone considering a real estate purchase consult with a reputable mortgage professional to confirm qualifications.

Now, what is rather encouraging is the fact that lending guidelines are easing and qualifying for mortgages today is easier than it was a year ago.  For example, some clients were recently approved for a $2,300,000 purchase with a $1,495,000 loan, and they only grossed just over $200,000 a year in income!  This was made possible since they had a great down payment, great credit, no other debt, and chose an aggressive loan program.

There are literally thousands of loan programs available, even ones that do NOT require income, so again, please have anyone interested in purchasing real estate consult with a reputable mortgage professional to confirm qualifications.

By the way, please let us know what you think of the massive overhaul that we’ve done to our website!


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