How Can I Figure Out My Debt-to-income Ratio?
To figure out where you stand on the debt-to-income ratio, you must first understand the meaning of the figure. Most lenders use the ratio 28/36.
The first number, which is also referred to as the front-end ratio, is the percentage of your gross monthly income that you could comfortably afford to spend on your housing payments or mortgage. This figure includes the money you spend on property taxes and insurance as well as the loan payment itself.
The second number, which can also be referred to as the back-end ratio, is the percentage of your gross monthly income that should be spent on all long-term monthly debts combined.
Use the following guidelines to find out where you stand:
- First, figure out your gross monthly income (your income before taxes). To do this, take your gross yearly income and divide it by 12.
- Multiply this figure by 28 percent (.28). The amount you come up with is TYPICALLY the amount you could comfortably afford to spend on your housing payments per month.
- Now, take your gross monthly income (your gross yearly income divided by 12) and multiply it by 36 percent (.36). The figure shown should be the TOTAL amount of money you spend on ALL LONG-TERM DEBTS COMBINED.
To get a more accurate mortgage estimate, tally up your monthly bills - which include car payments, credit cards, child support, alimony, etc. - and subtract this amount from the figure you just came up with. However much money is left over is the amount you should truly be spending on your housing payments per month.
Popular Real Estate Questions
Popular Real Estate Glossary Terms
A stated of years. The length of time something is effective, such as a two-year rental. A condition specified in an agreement. An example is that the tenant must not have a cat in ...
Marketing attractive space at the appropriate location at a good time in the correct square footage at a reasonable price or rental charge. An example is the renting out of space for retail ...
Under law, a warranty in effect even if not expressly stated. It provides that real property sold is warranted to be appropriate for sale and is in proper condition even if not stated, ...
The basic home inspection definition is well-known for everyone, right?However, when it comes to real estate, the term “inspection” can serve a bunch of purposes – but the ...
A collection of packaged residential mortgage loans for sale in the secondary mortgage market to investors. Companies with mortgage pools expect to earn a short-term profit and use the ...
The definition of a census-designated place or CDP is rather complex and difficult to understand. We are going to try to explain it as much as possible. Starting from the top and working ...
Locating a structure after considering such factors as the homeowner's desired privacy, noise, wind, and sunlight. Position of a structure on a specific location relative to ...
Income derived from a collection of asset investments. Real property investments produce rental and lease payment income. Investments in mortgages and other long term debt instruments ...
In order to define allotment, we have to take into consideration what it refers to. While generally, it refers to a certain amount of something that is allocated to a particular person, the ...
Have a question or comment?
We're here to help.