As dentists, you have a unique financial trajectory. Laurel Road recognized this dynamic and created the Dentist Mortgage which provides special financing options exclusively for Dentists. This exclusive financing option reduces the credit restrictions and cost to borrow, enabling dentists to afford more home at any stage during their career.
The 28% Income Rule
One of the common rules of thumb for making sure homeowners live within their means, is the 28% Income Rule. Financial advisors often recommend limiting your monthly housing expenses to 28% or less of your gross (pre-tax) monthly income. Let’s look at an example:
With an annual income of $160,000 and a monthly gross of the $13,000, the rule would apply as follows:
$13,000 ✕ 0.28 = $3,640 for a monthly payment, including principal, interest, taxes and insurance
The amount of principal and interest you will be approved for can vary depending on your home’s property taxes and the cost of homeowners’ insurance (which are often combined in an escrow account with your mortgage payment to make up your total monthly housing expense).
Additionally, the amount you put down on your home is relevant for it impacts your loan amount. The more you put down, the less the liability. So, while the 28% rule can be a good rough estimate for what you can afford in monthly housing payment, speaking with a mortgage specialist and getting prequalified is the best solution. A mortgage specialist will create a solution tailored your specific finances and find the product that best fits yours needs.
Consider the down payment
Before we compare income and home price, you will want to consider what down payment you can make. For most borrowers, if you make a down payment that’s less than 20% of the sale price you will typically have to pay for private mortgage insurance (PMI) on top of your total housing payment. Laurel Road’s Dentist Mortgage allows eligible dentists the ability to apply $0 down and pay no PMI. Given this special financing option, your ability to afford a down payment may not necessarily dictate which homes you can afford, but rather provides you with the opportunity to decide how much you want to put down versus investing elsewhere.
Rate plays a roll in determining what you can afford
We talked about the total loan amount having an impact on monthly housing affordability. Rate has a significant impact as well, given the higher the rate, the higher interest you will pay each month. Through Laurel Road’s exclusive partnership with the ADA, you are eligible for a 0.25% discount off of your mortgage interest rate. To make financing your home through Laurel Road’s Dentist Mortgage even more attractive, Laurel Road offers up to $650 in closing cost credit for using their digital platform for the application process.
Ask a lender how much you can afford
The most straightforward way – and the most realistic way – to learn how much you can afford is to get prequalified with a mortgage lender. A prequalified offer gives you an estimate of what you can borrow, providing a maximum borrowing amount based on your annual household income, expected down payment, credit history, and estimates for property taxes and homeowners’ insurance.
Many home buyers use a mortgage prequalification to confidently extend offers on a desired property, knowing that they’ll likely be approved for home financing. If you want to understand what you can truly afford and avoid the guesswork, talking to a reputable lender and getting prequalified is a great way to help you shop for a home confidently and stay within your budget.
Do you want to guess or are you ready to know?
The 28% rule combined with what you can afford in a down payment can be a good way to approximate your monthly mortgage budget and find neighborhoods that match your price window.
But when you start to seriously hit the open houses, you’ll want the certainty of a prequalified mortgage. Not only will it help you craft a competitive offer, but it also helps you understand your limits because your offer will be backed by your lender.
While the comforts of a new house are many, finding a price that comfortably fits within your budget is essential in finding your home. To learn more about the unique advantages of a Dentist Mortgage and the 0.25% ADA member interest rate discount from Laurel Road, visit the ADA’s Laurel Road Mortgage page to shop rates and get prequalified today.
Ms. Derks, Head of Mortgage at Laurel Road, carries over 25 years of experience in the financial services industry. Prior to joining Laurel Road, she held strategic leadership roles in product management, sales management, knowledge management, operations and marketing for industry leaders like Citigroup, PHH, National City and PNC.