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Borrowing Power
When you're buying real estate you should understand how to calculate your borrowing power because it's the first thing the bank will do to see if you approve for the loan. It will also help you understand how much you can be approved for without even going to the bank. All you need is a calculator to figure out your mortgage payment.
A calculator will help you figure out your mortgage payment based on the loan amount and the current interest rate. You also have to chose an amount of years to amortize the loan over which is usually 30 years.
If your goal is to invest in real estate then you should be going for the lowest mortgage payment possible so that you can afford a second and third home. If you get a 15 year loan you will be paying more principal each month which actually hurts your borrowing power.
Assume you can afford $2,000 per month and the 30 year loan is $800 vs the 15 year loan which is $1,300 per month. Well if you get the 30 year loan you can afford an extra $500 on the next mortgage you chose to get.
Your borrowing power all comes down to the amount you can afford per month. Then that amount is calculated into a home value which is the amount you can borrow.
Once you have bought your second home make sure you try to rent it out as soon as possible because 70% of the rent will be considered part of your income.
So you got the 30 year mortgage at $800 per month and rented it out for $700 per month. Well, 70% of $700 is $490 added to your gross income per month. That's over $5,000 per year!
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