| If you're in the process, or have been through the | | | | expenses (heat, electric, water, cable, etc) by |
| process, of getting a mortgage then I'm sure you've | | | | accounting for no more than 50% of your gross |
| heard the term Debt to Income Ratio. This ratio can be | | | | income. Let's assume the banks finds $1650.00 worth |
| found in two different ways; Your way and the banks | | | | of loans and bills for you. They would take 1650/4166 = |
| way. I recommend "your way" instead of the banks | | | | 39%. You're approved! That's assuming you have |
| because you can easily see what you can afford for | | | | good credit and a clean mortgage history of course. |
| a monthly mortgage payment. When figuring out this | | | | Your Way |
| number make sure you remember taxes, insurance | | | | This is simple! First add up every monthly expense you |
| and new expenses. | | | | can possibly think of (1000.00), and every dollar you |
| The Banks way | | | | make monthly after taxes (3,125.00). I would take off |
| The reason I don't recommend this formula is simple, | | | | about 200-300 for spending / Way to save money |
| you know your bills better than the bank does! Your | | | | from that 3,125 to make 2,825 - 1000 = $1,825.00 |
| Debt to Income Ratio is all of your monthly expenses | | | | available for you new home. Make sure you account |
| (debt) divided into your gross monthly income. Debt = | | | | for your new mortgage payment, taxes, insurance and |
| 1100/mo divided by Income = 2600/mo which is 42%. | | | | if there's a condo fee then include that too. Then take |
| Most banks don't approve a mortgage if your total | | | | a look at a mortgage calculator to realize how |
| debt including the new mortgage is over 46-49%, if | | | | expensive of a house you can afford and look in that |
| you get over that percentage you might be able to get | | | | range. |
| a caution mortgage loan. So what happens is, the bank | | | | You know you bills, expenses and spending habits |
| takes half of your gross income. | | | | better than anyone else, so it's up to you to be honest |
| Ex. 50,000/12 months = 4,166.00 available to spend. | | | | with yourself about what you can afford for you |
| Then mortgage company, or bank, will then run your | | | | monthly mortgage payment. Just because the |
| social security number to see if you have any debt or | | | | mortgage company says you can afford something it |
| existing loans to your name (car loan, college loans, | | | | doesn't mean you can. So be careful and use a |
| mortgage, rent, etc.). They already account for your | | | | mortgage calculator to analyze what you're |
| new mortgage payment, taxes, insurance and home | | | | comfortable spending each month on your new home. |