1. What is the Borrowing Power Calculation?

The Borrowing Power calculation estimates how much money a lender might be willing to loan you for a home purchase based on your income, expenses, and the lender's specific multiplier factor.

2. How Does the Calculator Work?

The calculator uses the Borrowing Power formula:

Where:

• \( Income \) — Your total annual income ($)
• \( Expenses \) — Your total annual expenses ($)
• \( Factor \) — Lender-specific multiplier (typically 4-6)

Explanation: The calculation determines your disposable income (income minus expenses) and applies a lender-specific multiplier to estimate your borrowing capacity.

3. Importance of Borrowing Power Calculation

Details: Understanding your borrowing power is essential when planning to purchase a home, as it helps you determine your budget and what properties you can afford before approaching lenders.

4. Using the Calculator

Tips: Enter your annual income and expenses in dollars, and the lender's factor (typically between 4-6). All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical lender factor?
A: Most lenders use a factor between 4-6, but this can vary based on interest rates, lending policies, and economic conditions.

Q2: Should I include all my expenses?
A: Yes, include all regular expenses like rent, utilities, loans, credit cards, and living expenses for an accurate calculation.

Q3: Does this calculation include interest rates?
A: The lender factor typically incorporates current interest rates and lending criteria, so you don't need to calculate them separately.

Q4: Is this the exact amount I can borrow?
A: This is an estimate. Actual borrowing capacity may vary based on credit history, employment stability, and other factors considered by lenders.

Q5: Should I use gross or net income?
A: Most lenders use gross income, but check with your specific lender as policies may vary.