How To Determine Your Borrowing Power
Conventional wisdom says you should find a car or house you like, and then figure out how to pay for it. Smart financial planning works the other way around: start with your budget. By using this "reverse" loan calculator, you can determine exactly how much you can borrow while keeping your monthly payment at a comfortable level.
Why Monthly Payment Matters Most
While the total price of an item is important, your ability to repay the loan is determined by your monthly cash flow. If a loan payment consumes too much of your monthly income, you may find yourself "house poor" or "car poor," struggling to cover other expenses. Experts recommend that your total debt payments (including mortgage/rent, auto loans, credit cards, etc.) should not exceed 36-43% of your gross monthly income.
Strategies to Increase Your Loan Amount
If the calculator shows a lower loan amount than you hoped for, consider these adjustments:
- Increase the Term: Spreading the loan over a longer period (e.g., 72 months instead of 60) lowers the monthly payment, which in turn allows you to borrow a larger principal amount for the same monthly cost.
- Lower the Rate: Shopping for a better interest rate or improving your credit score increases your buying power.
- Add a Co-Borrower: In some cases, adding a co-signer with strong credit can help secure a lower rate or approval for a higher amount.
Frequently Asked Questions
Does this apply to mortgages?
This calculator gives a rough estimate for mortgages but does not account for property taxes, homeowners insurance, or PMI, which significantly reduce the amount of "house" you can afford for a given monthly payment. For home buying, please use our Home Affordability Calculator.
What is a good Debt-to-Income (DTI) ratio?
Lenders typically prefer a DTI ratio below 36%, though some may approve loans with DTIs up to 43% or even 50% depending on other factors.
Are there limits to how much SECU will lend?
Yes, all loans are subject to credit approval and specific loan limits set by the credit union based on the loan type and your individual creditworthiness.