Buyers Purchase Power

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.



Sellers, on the other hand, demand the highest possible sale price, but can only sell at a price comprised of the loan amount homebuyers are qualified to borrow based on their 31% income ratio and the down payment they have saved.