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What Is My Borrowing Power?

Key takeaway

The top two numbers that will help guide you in figuring out what home price you may be able to afford are your down payment amount and your monthly payment amount. Buying a home is one of the biggest financial decisions you’ll make, and you’ll want to stay within your budget — both for making decisions now and for having confidence for the future.

When shopping for a home loan, different situations call for different types of loans. Understanding your loan options can help to give you choices as to how to finance your home purchase.

Similar to other financial products, various types of loans have different features. Some offer options for a lower down payment, for example. Mortgage lenders will look at a variety of factors to determine whether you meet certain financial or personal requirements to qualify for these types of loans.

One way to potentially have more mortgage choices is to improve your borrowing power by learning what lenders evaluate when reviewing your loan application.

Your home mortgage consultant can help you determine your borrowing needs and assess which loan products align with your homebuying goals.

Determining your price range

This short video explains the factors your lender will consider when you apply for a home loan.

Transcript: Determining your price range

Buying a home is one of the biggest financial decisions you'll make. That's why the first question many new homebuyers ask is How do I determine my price range? There are a number of factors that lead to that answer.

And a home mortgage consultant can help you. Since every buyer is different, a home mortgage consultant will want to get to know you so they can help you look at your whole financial picture before you start shopping for a home.

First, they'll talk with you about all the sources of income you'll use to pay your monthly bills. These sources can be from primary, secondary and part time jobs, along with overtime, bonuses and commissions. Other sources of income could be retirement or veterans benefits, disability payments and rental or investment income.

Alimony, child support or separate maintenance income can also be used but are not required. Next, they'll help you review your current debts and living expenses, such as credit card bills, student loans, car payments and rent. They will also review your credit history. Since your credit score can also affect your mortgage rate, it's a good idea to check your credit history before applying for a loan so you can correct any issues. You can get a free credit report annually at WWW.AnnualCreditReport.com and eligible Wells Fargo customers can access their credit scores and credit reports through their Wells Fargo banking account.

If you do have something on your credit report that hasn't been resolved, don't be discouraged. Not everyone has a perfect credit score and your home mortgage consultant will work with you on mortgage options that may be available. Finally, your HMC can talk with you about the down payment amount you want to make, the loan amount you want to apply for, and monthly payments that are comfortable for you. They can run cost scenarios with you to see how your down payment amount and credit score may affect your monthly mortgage payment, or how payments differ between different types of mortgage loans that are available to you.

If you want to see these options on your own, you can go to the Wells Fargo website and use the home affordability calculator to help you find your potential home price range. After entering in your yearly income, your existing debt, down payment amount and your location where you are looking to buy, you will see a home affordability estimate that shows your estimated home price, monthly payment and down payment amount. Here you can see that a home price of $250,000 with a 20% down payment of $50,000 would bring a monthly payment of $1,098.

You can also see how the home price may change when you change the amount of the monthly payment. Here we decreased the monthly payment amount to $500 and see that the home price goes down to $134,302, while the down payment amount remains the same.

Note that every situation is different and these results are only for illustrative purposes. You can also find your estimated interest rate and see estimated monthly payments for any home loan amount online with the Wells Fargo Mortgage Rate Calculator.

Once you enter your location, purchase price, down payment and credit score, you can get an estimated interest rate. You can also see how your payments may change with different down payment amounts or loan term options. Watch what happens if we change the loan term to 15 years from 30.

You will see in this example how the monthly payment increases, but the interest rate drops and the length of the loan is 15 years shorter. Your actual rate payment and costs could be different than what you see online.

The data is based on certain assumptions like the property type and owner occupancy, as well as the information you enter. So it's a good idea to connect with your home mortgage consultant to discuss loan options that are best for you. And with the information you have gathered, you can ask for a mortgage preapproval letter. Then when you are ready to shop, you'll already have a letter that shows sellers that you are likely a serious buyer. Your Wells Fargo Home Mortgage consultant can help you understand the options that you have so you can confidently make choices that are right for you.

We're here for you throughout the entire process, so reach out to us at any time. We're here to help.

Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A.

Important disclosures, assumptions, and APR information

General Disclosures

Rates, terms, and fees as of 9/17/2021 and subject to change without notice.
If the down payment is less than 20%, mortgage insurance may be required and could increase your monthly payment. The payment amount does not include homeowners insurance, flood insurance (if applicable), or property taxes that must be paid in addition to your loan payment.
The displayed Annual Percentage Rate (APR) is a measure of the cost to borrow money expressed as a yearly percentage. For mortgage loans, excluding home equity lines of credit, it includes the interest rate plus other charges or fees (such as mortgage insurance, discount points, and origination charges). For home equity lines, the APR simply reflects the interest rate. When shopping for a mortgage, you can use the APR to compare the costs of similar loans between lenders.
These mortgage rates are based upon a variety of assumptions and conditions, which include a consumer credit score that may be higher or lower than your individual credit score. Your loan's interest rate will depend upon the specific characteristics of your loan transaction and your credit history up to the time of closing.

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