# How do banks determine mortgage loan amounts?

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Video answer: Rent vs mortgage: how banks determine loan amount

## Top best answers to the question Â«How do banks determine mortgage loan amountsÂ»

- Lenders Use Debt Ratios to Decide How Much to Lend On an individual borrower basis, mortgage lenders use the
**debt-to-income ratio (DTI)**to decide how much to lend. They look at the amount of money you earn each month, in relation to your recurring debts. The math is fairly simple.

Video answer: Simple way to calculate how much mortgage you qualify

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Your debt-to-income (DTI) ratio is the amount of debt you have relative to incomeâ€”including your mortgage payments. If your housing costs, car loan, and student loan payments added up to $1,500 a month total and you had a $5,000 monthly income, your debt-to-income ratio would be $1,500/$5,000 or 30%.

The so-called standard down payment amount is 20% of the purchase price. That is not the only option, though. Down payments with Federal Housing Administration (FHA) loans may be as low as 3%, but they require mortgage insurance premium (MIP).

First, the borrower should know what the lender believes the borrower can afford and what size of a mortgage the lender is willing to give. Formulas are used to get an idea as to what size mortgage a client can handle. More importantly, the borrower should evaluate finances and preferences when making the decision.