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 Glossary Terms
The term developer’s profit is the actual profit generated by a developer’s project after the costs of the development have been covered. This profit can come from the sale of ...
Method of selling and obtains possession, but the seller retains the title. ...
Undeniably, some terms can make your head spin if you dive into real estate for the first time. Today, we’re breaking down a key term: Realtor Associate. It sounds official, ...
Sections of a homeowner policy. Section I relates to the home, contents, and accompanying structures. Section II provides comprehensive coverage for personal liability and the medical ...
To understand what liquidity risk entails, first, we must investigate what liquidity means. On the one hand, it refers to an individual or company’s capacity to meet debts without ...
Occupant's right in a structure to see out of the window without being hindered. For example, if someone wants to construct an office building adjacent to a home that will significantly ...
Cash earnings generated from a real estate investment or property. Cash earnings equals cash revenue less cash expense. The cash earnings may or may not be discounted to its present value ...
(1) Method of measurement lumber using the board foot cubic measure. The board measure is used to estimate quantities and prices of lumber materials. (2) Method of estimating lumber ...
Process of simultaneously appraising several pieces of property. Normally, occurs when a local government conducts a reassessment. ...
Have a question or comment?
We're here to help.