![]() Debt. Add all the payments you make each month for car loans, credit cards, student loan payment and any other debt.Make sure you have the documentation to prove every source of income otherwise it cannot be counted when you meet with a mortgage lender. A simple method is to divide your annual pre-tax income by 12 to produce your monthly gross income. Income. First, add up the income that will be used to qualify for the mortgage, including bonuses and commissions.The 28% and 36% ratios are standard in the mortgage world, but lenders may have other combinations available, such as 33%/38%. Generally speaking, and depending upon your location, they will typoically range from about 0.5% to about 2.5% for Taxes, and 0.5% to 1% or so for Insurance.įront End and Back End debt ratios are to determine how much of your monthly gross income can be used for your mortgage debt ( front end) and how much can be used to satisfy all your regular obligations ( back end). To produce estimates, both Annual Property Taxes and Insurance are expressed here as percentages. ![]() How to calculate how much house you can afford When you're ready, a lender can give you a more precise figure. Your final amount will vary depending on a number of factors, especially interest rate, which will be based on your credit score. Combine this amount with your down payment, and you'll answer your question of “how much house can I afford?” This is not the same as being preapproved for a mortgage loan, which involves borrowers placing an application and providing documentation to a lender, who will formally evaluate your financial situation. ![]() Prequalifying for a mortgage is simple, and is intended to give you a working idea of how much mortgage you can afford. This final figure includes the mortgage loan’s principal and interest payments, plus taxes, insurance and any other debts you are required to repay. Generally, lenders cap the maximum amount of monthly gross income you can use toward the loan’s principal and interest payment to not more than 28% of your gross monthly income (called the "Front-End" or "Housing Expense" ratio) and traditionally limit your total allowable debt-to-income ratio (called the "Back-End" ratio) to not more than 36%.
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