How Much Money Should You Borrow If You’re Buying a Condo?

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In May 2018, the San Diego Union-Tribune reported that median home prices had once again posted month-over-month increases, a trend that has been largely driven by sales of condo units and lofts in the downtown districts of San Diego. Market conditions continue to favor sellers as multiple bids have become common. While the median price of $570,000 may raise some eyebrows, it has not reached the levels of 2005 when adjusted for inflation, which means this market still has room to grow.

The California Association of Realtors estimates that prospective homebuyers in downtown San Diego should ideally earn more than $120,000 a year to be able to afford median home prices, but income alone will not determine how much you should borrow to acquire a downtown San Diego condo for sale in 2018. Here other things for you to consider when seeking condo financing.

Credit Score, History, and Qualifications

The better your credit score, the less you need to worry about being stuck with high mortgage interest rates and fees, but you may also be allowed to borrow more than you can afford. If you don’t have enough down payment to qualify for a conventional loan, a high credit score will allow you to buy a more expensive condo, but this does not mean you should do it unless you can realistically afford it.

Home Affordability Scenarios

If your mortgage broker or loan officer plays by the rules and guidelines established by the Consumer Financial Protection Bureau in the wake of the 2008 subprime mortgage meltdown, he or she will have you complete a home affordability worksheet. If not, you should demand it. Calculating how much you can borrow should be determined by your debt-to-income (DTI) ratio and not by the loan amount or the loan-to-value (LTV) ratio.

DTI Versus LTV

Mortgage lenders set their business by LTV ratios. For example, the 80/20 ratio of a conventional mortgage loan on a $500,000 condo means you could borrow up to $400,000 at a competitive rate, but this does not mean you would be able to afford monthly payments. The DTI ratio will determine how much you can borrow based on your income and debt obligations. This ratio should be between 36 and 45 percent, and it should include your condo association fees as well as utilities and private mortgage insurance if applicable.

Condo Association Fees

Mortgage lenders will always take monthly condo association fees into consideration when reviewing your loan application, and this can work to your advantage when calculating home affordability. Since insurance and maintenance of the structure and common areas are typically included in association fees, your monthly debt obligations will be lower. Something else to consider might be your access to amenities such as a swimming pool and fitness center, which means you no longer have to worry about monthly health club memberships.

Knowing how much can afford to borrow is just one of the many things to keep in mind if you’re thinking about buying downtown San Diego real estate for sale. Reach out to the trusted agents at 92101 Urban Living for help navigating the local real estate market. Call 619-649-0368 today.

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