With mortgage rates dropping, La Quinta homebuyers (and buyers all over the country) gain more purchasing power – as buyers with the same amount of monthly payment are able to borrow more money today and therefore purchase a more expensive house with more amenities than just one year earlier. Average 30 year fixed mortgage rates fell by 17.7% in a one year period ending in January 2012 – from 4.76% in Jan. 2011 to 3.91% in Jan. 2012.
The maximum amount a homebuyer can borrow to purchase property depends entirely on the amount of his down payment and the amount he’s qualified to borrow from a lender. His borrowing ability is based on these two factors:
1) current mortgage rates, which are always changing
2) home buyer’s income, which typically changes every year at the rate of inflation
It is known by lenders that on one hand, homebuyers are less likely to default if they are allocating no more than 31% of their monthly gross income to their monthly mortgage payments. Therefore, mortgage lenders are now refusing to lend more money than the buyer can repay at that 31% gross income ration amortized over 30 years based on a fixed interest rate.