When determining how much home you can afford and whether you are eligible for a home loan, a lender will look at your credit score. Typically, you need a score of 580 or higher to qualify, but it is recommended to have a 620 or higher. The higher your credit score, the better lending terms you may be eligible for.


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Lenders look into your credit rating, debt/income ratio, and many other documents to determine how much you can borrow. In addition, loan qualifications have been changing over the last year or so. As a rule of thumb, you’ll need to determine your gross income (before taxes) for all people that will be on the loan (borrower and co-borrower). Multiply this number by 2 to 2.5 This will give you a general idea of what you might qualify for. If you have a large down payment combined with little to no debt, the lender may believe that you can afford a more expensive home than this rule of thumb.

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Earnest money is something of value (called “consideration”) that a buyer puts forth to bind an agreement, such as the sale of real estate. Earnest money is forfeited by the buyer if he or she fails to carry out the terms of the contract. It’s up front money from a buyer to show a seller that the buyer is serious about the purchase. The money is usually deposited into an escrow account and is usually applied toward the buyer’s down payment.

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A debt-to-income ratio is important to your lender. To figure out where you stand on the ratio, you must first understand the meaning of the figure. Lenders use various ratios, but the most common is 28/36. The first number, (also known as the front-end-ratio) is the percentage of your gross monthly income that you could comfortably afford to spend on your housing payment. This figure includes escrow for taxes and insurance. The second number, (also known as the back-end-ratio) is the percentage of your gross monthly income that should be spent on all long-term monthly debts combined.

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