Average Mortgage Amount Reaches Record High

Last week, the average mortgage amount reached a record high of $418,500, according to the Mortgage Bankers Association.

According to The Motley Fool, mortgage rates are starting off 2022 at a higher level than they were at in 2021. And while borrowers may have stretched their budgets last year to buy a home, they had the benefit of lower mortgage rates to help offset their higher loan amounts.

Right now, mortgage rates are still fairly competitive, historically speaking. But they’re not as low as they were a year ago. That means home buyers who take out higher mortgages now risk getting in over their heads and struggling financially as a result.

How much of a mortgage can you afford?
As a general rule, it’s a good idea to keep your monthly housing costs to 30% of your take-home pay, if not less. Those costs should include your mortgage payment, property taxes, homeowners insurance premiums, and any other recurring housing expense that’s predictable (like homeowners association fees).

You can use a mortgage calculator to see what loan amount you can afford based on the interest rate you think you’ll qualify for and the amount of money you have for a down payment. Now, figuring what interest rate you’ll snag is tough because rates can change from day to day. Plus, the rate you’re eligible for depends on factors like your credit score and where you live.

But if you take a look at how mortgage rates are averaging, you can get a sense of what rate you may be offered, or at least use that as a starting point in your calculations. And from there, you can figure out how much of a borrowing limit to set.

In fact, mortgage lenders themselves use formulas to determine how much of a loan amount you can qualify for. But it’s important to run your own numbers and land on a figure you’re comfortable with.

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https://www.fool.com/the-ascent/mortgages/articles/average-mortgage-amount-hits-a-new-record-high/