Buying
A House? How Much Home Can You Afford?
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Maybe you’ve
heard the expert advice that your debt to income ratio shouldn’t
be more than 36 percent of your total income.
But do you truly know what that means, and how lenders will look at
your financial history in order to decide whether or not to extend you
a mortgage? If you need help figuring out your debt to income ratio,
simply follow the guidelines below and soon you’ll know whether
or not you’re in a position to apply for a mortgage loan.
Your debt to income ratio is the amount of monthly debt you pay out
in contrast to how much income you have coming in. Start by figuring
the easy part—your income. If you are on a structured paycheck,
then it will be easy—simply calculate your monthly salary. If you
work on a commission or other type of varying income, total your last
six month’s earnings and divide by six.
Now you will need to figure your monthly debt. You should total your
car payment, credit card payments (use the minimum amount payments for
this calculation, even if you pay more), any other monthly debt—such
as child support payments—along with the estimated amount of your
new mortgage payment.
Now, take the total of your debt payments and divide it by your income
and you will have your debt to income ratio. Most lenders will want
to see no higher than a 36 percent debt to income ratio, although there
are a few exceptions.
If you find that your debt to income ratio is so high that you may not
be able to quality for a mortgage, you should try to pay down some of
it before applying for your loan. This will not only better your chances
for a mortgage loan, but it will also ensure that you quality for one
with better interest rates and terms.
About The Author: To see a list of recommended mortgage loan companies
online, visit this page:
www.abcloanguide.com/mortgageloans.shtml
- Carrie Reeder is the owner of ABC Loan Guide. It is an informational
loan website, with informative articles and the latest finance news.
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