How Much Home Can I Afford?
This is the most important question prospective homebuyers ask themselves when trying to decide how much of their income will go to monthly mortgage payments. According to mortgage experts, the total amount you pay toward your mortgage should not exceed 28 percent of your gross income.
Determine your total income, including your regular salary, bonuses, regular income from dividends and interest, and assistance or support payments. In order to determine your maximum mortgage amount, you can use debt-to-income ratios, i.e. the percentage of your monthly gross income which is used to pay your monthly debts. Your debt-to-income ratio shouldn’t be higher than 36 percent.
A borrower’s housing costs consume 33% of their monthly income. Adding their monthly consumer debt to the housing costs, we should receive no more than 38% of their monthly income to meet the obligations. This common guideline — 33/38 — may vary according to loan program. In other words, assuming that you make $5000 a month, your maximum monthly housing cost should be about $1650, and including your consumer debt, your monthly housing and credit expenses should not exceed $1900.
When lenders are trying to determine whether to lend you money, they look at this ratio. Logically, to be able to get the loans or credit you require you need a good balance between debt and income.