How much house can I afford to buy in New Jersey, when using a mortgage loan?

This is one of the most common questions among home buyers in the state. Here are some things to keep in mind when establishing a budget and shopping for a home in New Jersey.

How Much House Can You Afford in New Jersey?

There are several factors to consider when deciding how much house you can afford to buy. For most buyers, mortgage financing plays an important role here. So the size of the loan you qualify for can obviously influence how much house you can buy. And that brings up the debt-to-income ratio.

Banks and mortgage companies use something known as the debt-to-income ratio, or DTI, as one of the factors in determining how much a person can borrow. So this ratio can affect your buying power as well.

Many financial advisors recommend that a person’s total debt payments (including the mortgage loan and all other recurring debts) should be no higher than 36% of gross income. But this is just a general rule doesn’t apply to all situations. Some people are capable of managing a higher level of debt.

That’s why most mortgage programs available in New Jersey today set the bar somewhere around 43%, for the total debt-to-income ratio — or even 50% in some cases.

Loan Limits Play a Role As Well

Your borrowing capacity could also be affected by the maximum size limits for the mortgage program you use. There are loan limits for FHA, VA and conventional mortgage products. These limits vary by county because they are based on home values, which can vary from one region to the next.

In New Jersey, the maximum size for a conventional conforming home loan ranges from $453,100 up to $679,650 (depending on where the home is located). 

It’s possible to borrow more than these amounts, as long as you have the income to support it. When you borrow more than the limit for your county, it’s referred to as a “jumbo” mortgage loan. In some cases, jumbo / non-conforming home loans have stricter criteria for borrowers.

What’s Your Financial Comfort Zone?

So we talked about two important factors that can determine how much house you can buy in New Jersey. Debt-to-income ratios play an important role for those home buyers who need to use mortgage financing. And loan limits can be a factor as well.

But there’s another important consideration as well, and that is your financial comfort zone. Ask yourself the following questions:

• How much are you comfortable spending each month toward your housing costs, in light of all of your other recurring debts?
• How much money do you need for lifestyle and entertainment expenses?
• How much would you like to put aside each month for savings and retirement?

Getting Preapproved: A Logical Next Step

Once you have a basic budget on paper, mortgage pre-approval is the next logical step. It’s a great way to determine how much house you can afford to buy, based on your mortgage financing. It can also help you narrow your home search to the kinds of properties you can afford, which could save you time and energy.

Mortgage pre-approval is a kind of financial screening process, and we can assist you with it. We can review your current financial situation (including income, assets and debts) to determine how much of a home loan you can afford to take on. Please contact us with any mortgage-related questions you have, or to start the pre-approvial process.