Buyer purchasing power

This article comes from First Tuesday Journal Online

Chart last updated 11/2/11

October 2011 September 2011 October 2010
One Year
Rate Differential


Data courtesy of Freddie Mac

A homebuyer’s maximum financial ability to purchase property depends entirely upon his down payment and the amount he qualifies to borrow from a lender. The amount a homebuyer can borrow is initially based on two factors:

  • the buyer’s income, which generally changes annually at the rate of inflation; and
  • current mortgage rates, which change constantly.

Lenders know that by one standard, homebuyers are less likely to default if they allocate no more than 31% of their monthly gross income to monthly mortgage payments. Accordingly, mortgage lenders now refuse to lend more money than the buyer can repay at that 31% gross income ratio amortized over 30 years based on a fixed rate of interest.


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